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 June 7, 2021.

We’ve noted in the previous Market Outlook that: “S&P is in a midst of short-term consolidation phase that reflects an indecisive market.  While near-term risk is greater to the downside, markets are volatile and traders may prefer not to hold large positions overnight.”  As anticipated, S&P closed the week higher Friday, rose about 0.9 percent to 4,229.89, as tech’s strength helped keep its win streak alive amid easing worries about the Federal Reserve tapering its bond purchases following a soft jobs report.  The Dow Jones Industrial Average gained 179.35 points to 34,756.39. The Nasdaq Composite outperformed, up 1.5 percent to 13,814.49.  The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, fell about 9 percent to 16.42.

Energy stocks were supported by rising oil prices amid expectations strong demand over the summer months will help offset the gradual increase in crude production from major oil producers next month.  As such, the Energy Select Sector SPDR Fund (XLE) rose 0.67 percent on the day and is up more than 47 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 higher after the early March correction found support near the late 2020 rising trend line.  Last week’s rally pushed the ETF above the March high, signified a bullish breakout and upside reversal.  The overall technical backdrop remains positive suggesting the rally might have some legs.  Right now the most important thing to watch is trading behavior as the 4-year moving average, just above 57, is tested as resistance.  A close above that level on a weekly closing basis will trigger acceleration toward the 2018 high, just below 80.

XLE has support around 49.  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 bullish (buy).  Last changed June 4, 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”]

Once again, the S&P climbed up to test resistance at the prior high set in early May after recent pullback was met with a new wave of buying interest.  The index is now at a key juncture.  It is testing formidable resistance from below.  Market internal has been deteriorated following recent setback but downside momentum does not appeared strong enough to generate widespread breakouts.  With that said we wouldn’t read too much into Thursday trading action as it keeps the S&P within its short-term consolidation phase.

For now, the May high, around 4236, acted as strong resistance.  A close above it is required to neglect the short-term sideways trading pattern.  With that said, there is no reason to turn particularly bullish until this area is eclipsed.

Short-term trading range: 4170 to 4236.  S&P has support around 4170.  A failure to hold above that level has measured move to around 4132.  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, S&P is at key technical juncture.  Current rally is testing formidable resistance at the prior high set in early May.  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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