Path With Least Resistance Remains Higher As Long As S&P Holds Above 4140

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.


Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday April 30, 2021.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, S&P closed at record highs Thursday, climbed 0.7 percent to 4,211.60, as tech steadied from its intraday malaise and a Facebook led rally in communication services supported investor sentiment.  The Dow Jones Industrial Average rose 0.7 percent to 34,060.36.  The Nasdaq Composite added 0.2 percent to 14,082.55.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, gained 1 percent to 17.46.

Financials were pushed higher by a rise in banks and insurance companies. Cincinnati Financial Corporation (CINF) led the group after the regional bank reported its first-quarter results late-Wednesday and topped analysts’ estimates.  As such, the Financial Select Sector SPDR Fund (XLF) rose 1.78 percent on the day and is up more than 24 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLF.

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 – Financial Select Sector SPDR Fund (weekly)

Our “U.S. Market Trading Map” painted XLF bars in green (buy) – see area ‘A’ in the chart.  XLF has been on a tear in recent days after the March correction found support near the late 2020 rising trend line.  This week’s rally pushed the ETF above the closely watch 35 zone, or the prior high set in March, signify a bullish breakout and upside reversal. A close above 35 on a weekly closing basis will confirm this and trigger acceleration toward the 38.50 zone, or the 127.2% Fibonacci extension.  Above it, a more significant resistance lies around 48, or the 161.8% Fibonacci extension.

XLF has support around 35.  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”]

Key technical development in Thursday session was a clear break above the important sentiment 4200 mark.  This level was tested several times over the past days.  Right now follow-through is the key.  A consecutive close above 4200 tomorrow will confirm the bullish signal and setting the stage for a retest of the red band, currently at 4250-4370. As mentioned, the normal behavior for the S&P has been to consolidate and retreated almost every time it traded above the lower boundary of the red band, so there is a high probability that a significant consolidation pattern will again develop in the coming days.

On the downside, 4140 is the line in the sand.  A failure to hold above it indicated that long-term buying pressure has been exhausted and a much deeper pullback should be expected and we’re looking at 4000, based on the trend channel moving average.

Short-term trading range: 4140 to 4250.  S&P has support around 4175.  A failure to hold above that level has measured move to around 4140.  Resistance is around 4250.  A sustain advance above that level has measured move to 4370.

Long-term trading range: 3650 to 4600.  S&P has support near 3900.  A failure to hold above that level has measured move to 3650.  The index has resistance near 4250.  A close above that level has measured move to 4600.

In summary, S&P cleared key resistance, breaking out above the important sentiment 4200 mark.  Consecutive close above 4200 this week would confirm Thursday’s bullish reversal signal, supporting upside follow-through in the days ahead.  Our near-term work on momentum and price structure suggested that the path with least resistance remains higher as long as the S&P holds above 4140.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.