Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday April 20, 2020.
We’ve noted in the previous Market Outlook that: “S&P shifted to consolidation mode as traders wondered more gains are warranted given the massive advance over the past weeks. Out near-term work on price pattern and momentum suggested strongly that the bulls will continue to have the benefit of the doubts as long as the S&P holds above 2750. As for strategy, we’d look to buy into intraday dips in anticipate a rapid advance toward the falling trend channel moving average.” As anticipated, stocks rallied in the final half hour of trading to close right around session highs following reports that says a Gilead Sciences drug has again appeared to be an effective coronavirus treatment and the White House’s move to start to relax business closure recommendations. The S&P added 2.7 percent to 2,874.56 while the Nasdaq Composite advanced 1.4 percent to 8,650.14. The Dow Jones Industrial Average rallied 3 percent to 24,242.49. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 5 percent to 38.15.
Consumer staples attracted strong buying support after Procter & Gamble Co. (PG) says organic sales rose 6 percent as the coronavirus pandemic prompted panic-buying of household staples. As such, the Consumer Staples Select Sector SPDR ETF (XLP) gained 1.53 percent on the day but is down nearly 4 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in XLP.
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 Staples Select Sector SPDR ETF (weekly)
Our “U.S. Market Trading Map” painted XLP bars in green (buy) – see area ‘A’ in the chart. XLP has been on a tear in recent weeks after the late February selloff found support near the 38.2% Fibonacci retracement of the 2009-2020 bull market. The March rally pushed the ETF above the February falling trend line, signify a bullish breakout and upside reversal. This is a positive development, opened up for a retest of the February high, just below 65. A consecutive close above 59 on a weekly basis will confirm this.
XLP has support just above 58. 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 April 17, 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”]
As expected, S&P rebounded nicely after recent pullback founds support near the 38.2% Fibonacci retracement. The late day rally pushed the index above the trend channel moving average. This level was significant when the index fell below it in February. Momentum indicator trended higher from near overbought zone, indicating an internal strength. This is a positive development but let’s notice that with Friday gains, the index is less than 40 points below the early March breakdown point, around the important sentiment 2900 zone. Adding to concerns is the negative Money Flow measure. These elements will negatively affect trading sentiment in the coming days.
Short-term trading range: 2750 to 2900. S&P has support near 2863. A failure to hold above that level has measured move to around 2750. The index has resistance near 2900. A breakout above that level has measured move to around 3000.
Long-term trading range: 2190 to 2950. S&P has support near 2400. A failure to hold above that level has measured move to 2000. The index has resistance near 2960. A close above that level has measured move to 3300.
In summary, Friday bullish breakout above the trend channel moving average had helped putting the bulls back onto the driver side of the market. However, given the looming resistance near the 2900 zone on the S&P, there is no big commitment to accumulate stocks aggressively at this point. What this means is that as the S&P inches into the area of key overhead resistance, aggressive sellers will most likely dips in their toes to see how the market reacts. So, it should not be surprising to see some short-term setbacks in the coming days.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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