S&P In Narrow Trading Range

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

We’ve noted in the previous Market Outlook that: “S&P rally attempt failed at formidable resistance.”  As anticipated, S&P closed flat again Wednesday, as gains in energy were canceled out by a weakness in materials and consumer stocks as investors looked ahead of Friday’s jobs report for further direction.  For the day, the bench mark gauge gained 0.14 percent to 4,208.12. The Dow Jones Industrial Average added 25 points to close at 34,600.38. The technology-heavy Nasdaq Composite rose 0.14 percent to 13,756.33.  The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, fell more than 2 percent to 17.46.

Tech made modest gains as semiconductor and megacap tech stocks were mostly higher.  Nvidia (NVDA) rose more than 3 percent, helping the broader iShares PHLX Semiconductor ETF (SOXX), up 0.61 percent on the day and is up more than 14 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in SOXX.

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 – iShares PHLX Semiconductor ETF (weekly)

Our “U.S. Market Trading Map” painted SOXX bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, SOXX has been trending higher after the early April correction found support near the 388 zone or the lower boundary of the 2021 trading range. This week’s upside follow-through confirmed last week’s bullish reversal signal.  The overall technical backdrops remains positive, suggesting the ETF will take a new leg higher as soon as it works off excessive optimism.  Over the next few weeks, traders should monitor trading behavior as the 450 zone is tested as resistance.  A close above that level on a weekly closing basis will trigger acceleration toward the 668 zone, or the 261.8% Fibonacci extension.

SOXX has support around 388.  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 May 20, 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”]

Not much has been changed since last update.  S&P continues basing sideways near the lower boundary of the pink band.  Money Flow measure flattened near zero line, indicating a lack of commitment among the bulls. Momentum indicator whipsaws below overbought zone, suggesting further backings and fillings likely.  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.

On the upside, resistance is strong near the early May high, around 4036.  That level roughly corresponds with the lower boundary of the pink band.  A sustain advance above that level will trigger acceleration toward the 4300 zone.

As for support, 4200 is the line in the sand.  We’d turn particular bearish if the index closes twice below that level.

Short-term trading range: 4200 to 3950.  S&P has support around 4200.  A failure to hold above that level has measured move to around 4170.  Resistance is around 4236.  A sustain advance above that level has measured move to 4300.

Long-term trading range: 3650 to 4700.  S&P has support near 4000.  A failure to hold above that level has measured move to 3650.  The index has resistance near 4350.  A close above that level has measured move to 4700.

In summary, technical pressures are building up as the market dances its way into an increasingly tight trading range. S&P’s 4200 marks the inflection point.  A failure to hold above key level indicates a change in sentiment and a much deeper pullback should be expected.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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