Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday April 2, 2020.
We’ve noted in the previous Market Outlook that: “the big picture remains the same. There is a consolidation near the upper boundary of the green band, which represents digestion period. S&P’s 2650 is the line in the sand. If the market is going to find bottom in the near term, we want to see the S&P stabilizes and climbs above 2650. Staying below that level heralds more losses.” As anticipated, S&P plunged as a wave of late selling hit Wall Street Wednesday as investors pulled their bullish bets on stocks on rising fears the economic hit from the Covid-19 pandemic could be worse than feared, with infections in the U.S. topping 200,000.
For the day, the S&P dropped 4.4 percent to 2,470.50. The Nasdaq Composite fell 4.4 percent to 7,360.58. The Dow Jones Industrial Average also dropped 4.4 percent to 20,943.51. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped more than 6 percent to 57.06.
Tech stocks lagged, paced by a steep decline in chip stocks as investors scaled back some of their late-quarter bullish bets on the sector. Nvidia (NVDA) was among the biggest losers, falling 7 percent, dragging the Philadelphia Semiconductor Index 5.5 percent lower. As such, the iShares PHLX Semiconductor ETF (SOXX) tumbled 5.47 percent on the day and is down about 23 percent YTD, roughly in line with 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 red (sell) – see area ‘A’ in the chart. Like the rest of the market, SOXX is in free fall mode after the 2019 rally ran into resistance near 270. The late February selloff found some solid footing near the massive 2-conjoining support, or the 4-year moving average and the 38.2% Fibonacci retracement of the 2009-2020 major upswing. The late March recovery rally pushed the ETF up against the 1-year moving average. This week’s bearish reversal signal suggested that the resistance would hold and a retest of the 170 zone should follow shortly. A failure to hold above 170 has measured move to around 147.
SOXX has resistance near 218. Short-term traders could use that level as the logical level to measure risk against.
Chart 1.2 – S&P 500 index (weekly)
Short-term technical outlook shifted to bearish (sell). Last changed April 1, 2020 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 oversold relief rally ran into resistance near the upper boundary of the green band. Key technical development in Wednesday session was a clear break below 2570, signify a bearish breakdown and downside reversal. This is a negative development but follow-through is the key. A consecutive close below 2470 will confirm the bearish signal and a retest of the March low, just below 2200, should be expected.
Money Flow measure hovers around the lowest level going back to late 2018, indicating a negative net demand for stocks. Momentum indicator shifted lower from near oversold zone, indicating an internal weakness. These elements suggested that the path with least resistance remains lower.
For now, 2650 represents key overhead resistance. If the market is going to find bottom in the near term, we want to see the S&P stabilizes and climbs above 2650. Staying below that level heralds more losses. With that said, a weekly close above 2650 will turn the medium-term trend up and trigger acceleration toward the 2900 zone.
Short-term trading range: 2470 to 2680. S&P has support near 2470. A failure to hold above that level has measured move to around 2200. The index has resistance near 2650. A breakout above that level has measured move to around 2900.
Long-term trading range: 2000 to 3000. S&P has support near 2260. A failure to hold above that level has measured move to 2000. The index has resistance near 2600. A close above that level has measured move to 2900.
In summary, S&P broke short-term upward trend Wednesday, signify resumption of the February major downswing. Nevertheless, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakouts are decisive. A consecutive close below 2470 will confirm the bearish signal and a retest of the March low should follow shortly.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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