Tag Archives: Commerce Department

S&P’s Upside To Be Limited By Overbought Conditions

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday December 17, 2020.

We’ve noted in the previous Market Outlook that: “S&P trades in broad trading bands that define the trend behavior. The upswing was very rapid with some short-term consolidation near each of the significant support or resistance levels. These support and resistance levels also define the limits and barriers to any future rally and uptrend development.  Our near-term technical bias on the S&P is that additional consolidations will unfold between 3650 and 3770.”  As anticipated, S&P rose slightly on Wednesday, up 0.2 percent to 3,701.17, amid the Federal Reserve’s latest pledge to support the economy and the apparent progress in U.S. fiscal stimulus negotiations.  The Nasdaq Composite gained 0.5 percent to 12,658.19.  The Dow Jones Industrial Average lagged, fell 0.15 percent to 30,154.54.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 2 percent to 22.53.

The Commerce Department said on Wednesday that retail sales fell 1.1 percent last month, a deeper contraction than the 0.3 percent decline expected. The retail sales control group – which has a larger impact on U.S. GDP – fell 0.5 percent confounding expectations for a 0.2 percent rise.  Retailers shrugged off signs of consumer weakness thanks to a rise in eBay (EBAY) and Hasbro (HAS).  As such, the SPDR S&P Retail ETF (XRT) rose 0.29 percent on the day and is up more than 35 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XRT.

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 Retail ETF (weekly)

Our “U.S. Market Trading Map” painted XRT bars in green (buy) – see area ‘A’ in the chart.  XRT has been on a tear in recent days after breaking out above the prior high set in 2018.  The early November rally pushed the ETF toward the closely watch 65 zone, or the 127.2% Fibonacci extension.   The overall technical backdrop remains supportive of further advance. Right now the most important thing to watch is the rally and retreat behaviors as the 65 zone is tested.  A close above that level on a weekly closing basis signify a bullish breakout and trigger acceleration toward the 80 zone, or the 161.8% Fibonacci extension.

The 2020 rising trend line, round 57, represents the logical level to measure risk against.  All bets are off should XRT close below that level.

Chart 1.2 – S&P 500 index (daily)

Short-term technical outlook remains bullish (buy).  Last changed December 15, 2020 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”]

S&P moved up to test resistance at the important sentiment 3700 zone after recent pullback found support near the lower boundary of the pink band.  Money Flow measure crossed above the zero line after falling below that level last week.  This is a positive development but let’s notice that the market is short-term overbought following recent rally.  This might put a cap on the upside.  While more backing and filling would not be a surprise, a consecutive close above 3700 would open up for a test of the red band, currently at 3775.

For now, 3600 is the line in the sand.  That level was tested several times over the past weeks.  Technically speaking, when strong support is broken it means that near-term buying pressure has finally been exhausted.  With that said, a close below 3600 is outright bearish and a much deeper pullback should be expected and we’re looking at the low 3500s.

Short-term trading range: 3650 to 3775.  S&P has support near 3680-3650.  Below it, a more significant support lies at the trend channel moving average, currently at 3536.  Resistance is around 3700.  A sustain advance above that level has measured move to around 3775.

Long-term trading range: 2750 to 3730.  S&P has support near 3200.  A failure to hold above that level has measured move to 3100.  The index has resistance near 3700.  A close above that level has measured move to 3900.

In summary, market internal has been strengthened as S&P climbed up to test the important sentiment 3700 zone. Not only that this area is too big and too important to fall quickly, the return of overbought conditions on intraday basis will keep the lid of the upside.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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