Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday March 23, 2020.
Stocks fell Friday, concluding one of the most volatile weeks on Wall Street ever as investors grapple with mounting fears over the coronavirus’ economic blow. The S&P slid 4.3 percent to 2,304.92 while the Nasdaq Composite fell 3.8 percent to 6,879.52. The Dow Jones Industrial Average dropped more than 4 percent to 19,173.98. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 8 percent to 66.04.
The sea of red on Wall Street was paced by declines in utilities and consumer staples, which usually serves as a defensive corner of the market. Kroger (KR) and Clorox (CLX) tumbled more than 7 percent while Walgreens Boots Alliance (WBA) fell more than 4 percent. As such, the Consumer Staples Select Sector SPDR ETF (XLP) dropped 6.5 percent on the day and is down 20 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 red (sell) – see area ‘A’ in the chart. Like the rest of the market, XLP is in free fall mode after the late February selloff undercut the 4-year moving average, a key technical level based on moving averages. Over the next few days, the most important thing to watch is trading behavior as the 48 zone, the 2018 lows and the 38.2% Fibonacci retracement of the 2009-2020 upswing, is tested as support. While not expected at this moment, a failure to hold above that level will bring the 50% Fibonacci retracement, around 42, into view.
XLP has resistance near 55. 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 remains bearish (sell). Last changed March 5, 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”]
Key technical development in Friday session was a close below the massive 2-conjoing support near the 2350 zone, or the late 2018 low and the 38.2% Fibonacci retracement of the 2009-2020 major upswing. This is a negative development, increased the probability of the test of the more important support at the 2000 zone, of the 50% Fibonacci retracement.
Momentum indicator is at the lowest level going back to late 2008 – the Financial Crisis, indicating extreme oversold conditions. While oversold condition is normal during a major downswing, it’s suggested that the market might take a short-term breather prior to a major selloff. So it should not be surprising to see some consolidations prior to new downswing. If the market is going to find bottom in the near term, we want to see the S&P establishes some trading ranges and climbs above 2640. Staying below that level heralds more losses.
The 2300 mark represents key support. A close below that level on a weekly basis will trigger a new wave of selling with downside target around 2000.
Short-term trading range: 2200 to 2640. S&P has support near 2300. A failure to hold above that level has measured move to around 2200. The index has resistance near 2640. A breakout above that level has measured move to around 2850.
Long-term trading range: 2260 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 3000. A close above that level has measured move to 3400.
In summary, S&P broke several supports last week, capping off its worst week since 2008. When key supports broke it means that long-term buying pressure has finally been exhausted. The index is at critical level. The 2300 mark represents key support. A close below that level on a weekly closing basis will bring the 2000 zone into view. If the market is going to find bottom in the near term, we want to see the S&P establishes some trading ranges and climbs above 2640. Staying below that level heralds more losses.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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