S&P In Orderly High-level Consolidation

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday April 29, 2021.

We’ve noted in the previous Market Outlook that: “technical pressures are building up as the market dances its way into an increasingly tight trading range.”  As anticipated, S&P slipped into the red Wednesday, dipped 0.08 percent to 4,183.18, after hitting record intraday highs as the Federal Reserve left rates steady and signaled ongoing support for the recovery. The Dow Jones Industrial Average shed 0.48 percent to 33,820.38. The Nasdaq Composite slid 0.28 percent to 14,051.03.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 1 percent to 17.28.

Energy stocks were boosted by a rise in oil prices after data showing a smaller-than-expected build in weekly U.S. crude inventories cooled investor worries that rising global infections will soften demand.  Crude oil inventories edged higher by 90,000 barrels last week, compared with analysts’ expectations for a build of 659,000 barrels.  As such, the Energy Select Sector SPDR Fund (XLE) rose 3.45 percent on the day and is up more than 32 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLE.

The graphics below are from our “U.S. Market Trading Map”, show the near-term technical bias and trading ranges.  As shown, the underlying is in a short-term bullish trend when the price bars are painted in green.  The underlying is in a short-term bearish trend when the price bars are painted in red.  The yellow bars identify period of neutral or sideways trading pattern.  Additionally, the light-blue shading represents the short-term trading range.  A move above or below that range is considered overbought (as represents by the red shading) or oversold (as represents by the dark-green shading).  Readings above or below the red and green shaded areas are considered extremely overbought or extremely oversold.

Chart 1.1 – Energy Select Sector SPDR Fund (weekly)

Our “U.S. Market Trading Map” painted XLE bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, XLE has been trending lower in a short-term corrective mode after the early February rally ran out of steam just above the 50% Fibonacci retracement.  The late March correction found support near the late 2020 rising trend line.  This week’s rally pushed the ETF above the March’s falling trend line signify a bullish breakout and upside reversal.  A close above 51 on a weekly closing basis will confirm this and trigger acceleration toward the 58 zone, or the 61.8% Fibonacci retracement.

XLE has support around 46.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2 – S&P 500 index (daily)

Short-term technical outlook remains bullish (buy).  Last changed April 23, 2021 from bearish (sell) – (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

The big picture remains the same.  S&P continues basing sideways near the important sentiment 4200 zone.  Market internal remains bullish but upside momentum does not appeared strong enough to generate widespread breakout.

Over the next few days, traders should monitor the rally and retreat behaviors as the 4200 is tested.  That level is significant in charting terms.  A sustain advance above that level will bring the lower boundary of the red band, around 4240, into view.  As mentioned, the normal behavior for the S&P has been to consolidate and retreated almost every time it traded above that level, the way we had in January, February and March, so there is a high probability that a significant consolidation pattern will again develop in the coming days.  Nonetheless, the overall technical backdrop continues favor the bulls so we believe that any dips are a buying opportunities rather than time to take profits and get out.

For now, 4100 is the line in the sand.  We’d turn particular bearish if the index closes twice below that level.

Short-term trading range: 4130 to 4240.  S&P has support around 4170.  A failure to hold above that level has measured move to around 4130.  Resistance is around 4200.  A sustain advance above that level has measured move to 4240.

Long-term trading range: 3550 to 4500.  S&P has support near 3900.  A failure to hold above that level has measured move to 3550.  The index has resistance near 4200.  A close above that level has measured move to 4500.

In summary, the big picture remains the same.  There’s an orderly high-level consolidation period near S&P’s 4200 zone.  The overall technical backdrop continues favor the bulls so we believe that any dips are a buying opportunities rather than time to take profits and get out.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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