Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday March 22, 2021.
S&P closed slightly lower Friday, dipped 0.1 percent to 3,913.10, amid weaknesses in bank stocks as bond yields retreated sharply after hitting more than one-year highs earlier last week. The Dow Jones Industrial Average fell 0.7 percent to 32,627.97. The Nasdaq Composite gained 0.8 percent to 13,215.24 as investors bought the dip in tech shares. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped more than 5 percent to 20.95.
The United States 10-Year yields, which trade inversely to prices, retreated Friday after hitting 1.75% as the Federal Reserve said it would not extend the supplementary leverage ratio exemptions– a measure that had allowed banks to hold lower capital reserves – beyond the March 31 deadline. The action from the Fed and subsequent move in yields dealt a blow to banking stocks. JPMorgan Chase (JPM), down 2 percent, and Wells Fargo (WFC), down 3 percent, led the declines. As such, the SPDR S&P Bank ETF (KBE) fell 0.97 percent on the day but is up about 29 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in KBE.
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 – SPDR S&P Bank ETF (weekly)
Our “U.S. Market Trading Map” painted KBE bars in green (buy) – see area ‘A’ in the chart. KBE has been on a tear in recent days after the early 2021 correction found support near the late 2020 rising trend line. The February rally pushed the ETF above the closely watch 52 zone, or the early 2018 high. Last week’s selloff suggested that the stage has been set for a test of support at the 49-52 zone. The overall technical backdrop remains positive, suggesting that pullback should be shallow and quick. Resistance is around 56. A sustain advance above that level on a weekly closing basis will trigger acceleration toward the 63 zone, or the 127.2% Fibonacci extension.
KBE has support near 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 remains bearish (sell). Last changed March 18, 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”]
As expect, S&P moved down to test support at the trend channel moving average after recent test of resistance at the lower boundary of the red band was met with a new wave of selling interest. Market internal has been deteriorated following recent decline but downside momentum does not appear strong enough to generate widespread breakdowns.
Resistance is around 4000. That level roughly corresponds with the lower boundary of the red band. The normal behavior for the S&P has been to consolidate and retreated almost every time it traded above that level so there is a high probability that a significant consolidation pattern will again develop in this area.
On the downside, the trend channel moving average, just above 3860, is the line in the sand. That level was tested several times over the past months. When strong support is broken it means that near-term buying pressure has finally been exhausted. With that said, a close below that level is outright bearish and a much deeper pullback should be expected and we’re looking at the low 3700s.
Short-term trading range: 3860 to 4000. S&P has support around 3860. A failure to hold above that level has measured move to around 3740. Resistance is around 4000. A sustain advance above that level has measured move to 4040.
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, trading behaviors in the S&P constrained by a short-term sideways pattern and shown little evidence of a sustainable change in trend. For now, 4000 is the line in the sand. There is a no reason to turn particularly bullish until this area is taking out.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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