S&P At Key Juncture

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday May 3, 2021.

Equity market ended lower on Friday, with Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL) and other tech-related companies weighing on the S&P and Nasdaq despite recent strong quarterly earnings reports.  The S&P fell 0.7 percent to 4,181.17, while the Dow Jones Industrial Average shed 0.54 percent to 33,874.85. The Nasdaq Composite dropped 0.9 percent to 13,962.68.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped about 7 percent to 18.61.

Twitter Inc (TWTR) plunged 15% after it offered a tepid revenue forecast for the second quarter, saying user growth could slow as the boost seen during the pandemic fizzles.  As such, the Global X Social Media ETF (SOCL) fell 2.68 percent on the day buy is up about 12 percent YTD, roughly inline with the S&P.  Now the question is what’s next?  Below is an update look at a trade in SOCL.

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 – Global X Social Media ETF (weekly)

Our “U.S. Market Trading Map” painted SOCL bars in green (buy) – see area ‘A’ in the chart.  SOCL has been trending higher over the past weeks after the February correction found support near the 2020 rising trend line.  That level roughly corresponds with the 23.6% Fibonacci retracement of the 2020-2021 upswing.  The overall technical backdrop remains positive, suggesting that the ETF will take a new leg higher as soon as it works off excessive optimism.  A close above 72 on a weekly closing basis will confirm this and trigger acceleration toward the 79 zone, or the prior high set in February.  Above it, a more significant resistance is around 90, or the 127.2% Fibonacci extension.

SOCL has support around 68.  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 shifted to bearish (sell).  Last changed April 30, 2021 from bullish (buy) – (see area ‘A’ in the chart).

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

S&P retreated after recent test of resistance at the important sentiment 4200 mark was met with a new wave of selling interest.  That level was tested several times over the past weeks. Market internal deteriorated but downside momentum does not appeared strong enough to generate widespread breakouts.

Over the next few days, traders should monitor trading behaviors as the 4150 zone is tested as support.  If it closes below that level, the next leg is likely lower, and we’re looking at 4000, based on the trend channel moving average.

On the upside, S&P has 4200 to trade against.  We’d turn particular bullish if the index closes twice above that level.

Short-term trading range: 4150 to 4250.  S&P has support around 4150.  A failure to hold above that level has measured move to around 4000.  Resistance is around 4200.  A sustain advance above that level has measured move to 4250.

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 is at key technical juncture.  Current rally is testing formidable resistance near 4200.  The longer the index stays below that level, the more vulnerable it is to lower prices.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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