Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday March 10, 2021.
Stocks rose on Tuesday after a decline in bond yields caused investors to rotate back into the beaten-up technology sector. The Nasdaq Composite climbed 3.69 percent to 13,073.82. The S&P advanced 1.4 percent to 3,875.44. The Dow Jones Industrial Average up 0.1 percent to 31,832.74. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 6 percent to 24.03.
Consumer discretionary stocks were sharply higher as investors bet on wave of consumer spending to come as U.S. households’ bank accounts will get another boost from the $1.9 trillion fiscal relief bill expected to sign into law before mid-March. As such, the Consumer Discretionary Select Sector SPDR Fund (XLY) jumped 3.78 percent on the day and is up nearly 2 percent YTD, slightly underperformed the S&P. Now the question is what’s next? Below is an update look at a trade in XLY.
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 – Consumer Discretionary Select Sector SPDR Fund (weekly)
Our “U.S. Market Trading Map” painted XLY bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, XLY has been trending lower in short-term corrective mode after the late 2020 rally ran out of steam just above the 127.2% Fibonacci extension. The February correction found support near the 150 zone. The overall technical backdrop deteriorated following recent selloff. This is short-term negative development suggesting that XLY might take a leg lower as soon as it works off excessive bearishness. A close below 150 on a weekly closing basis signifies resumption of the February downswing and a test of the early 2020 high, just above the 130 zone should be expected.
XLY has resistance near 165. 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 March 9, 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”]
Tuesday’s upside follow-through confirmed Monday’s bullish breakout above the trend channel moving average. This is a positive development. Momentum indicator trended higher from near oversold zone, allowing additional upside probing. However, let’s notice that Money Flow measure is below the zero line, indicating a negative net demand for stocks. Additionally, with recent gains, the S&P is now up against the February falling trend line, around 3900. There is no reason to turn particularly bullish until this zone is eclipsed.
As for support, S&P must holds above 3800 on a closing basis to prevent a test of the more important support at the 3700-3500 zone.
Short-term trading range: 3800 to 3900. S&P has support around 3800. A failure to hold above that level has measured move to around 3700. Resistance is around 3900. A sustain advance above that level has measured move to 3950.
Long-term trading range: 3300 to 4300. S&P has support near 3600. A failure to hold above that level has measured move to 3300. The index has resistance near 4000. A close above that level has measured move to 4300.
In summary, our near-term works on momentum and price pattern suggested strongly that the path with least resistance remains higher as long as the S&P holds above 3800. As for strategy, buying into short-term market dips remains the most profitable strategy.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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