Tag Archives: cyclicals

S&P In Early Stage Of New Upleg

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.

 

Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday May 7, 2021.

The Dow Jones Industrial Average closed at record highs, up 0.90 percent to 34,548.53, Thursday as cyclicals continued to ride economic optimism after jobless claims fell sharply, while tech cut losses into the close ahead of the April jobs report due Friday.  The S&P rose 0.8 percent to 4,201.62. The Nasdaq Composite erased earlier losses and gained 0.4 percent to 13,632.84.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 4 percent to 18.30.

Consumer staples were among the best performing sectors during the day following a 7 percent rally in Kellogg (K) as the Special K and Pringles owner raised its full-year guidance after strong Q1 results.  As such, the Consumer Staples Select Sector SPDR Fund (XLP) rose 1.29 percent on the day and is up nearly 5 percent YTD, underperformed 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 Fund (weekly)

Our “U.S. Market Trading Map” painted XLP bars in green (buy) – see area ‘A’ in the chart.  over the past few weeks, XLP has been trending lower in a short-term corrective mode after the March rally ran out of steam near the 70 zone.  This week’s rally pushed the ETF above the late April falling trend line, signifies a bullish breakout and upside reversal.  A close above 70 on a weekly closing basis will confirm this and trigger acceleration toward the 77 zone, or the 127.2% Fibonacci extension.

XLP has support around 68.  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 May 6, 2021 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”]

Once again, the S&P rebounded nicely off support at the lower boundary of the pink band.  This level is significant in charting terms.  It provided support and acted as launching pad for the March rally.  This history indicated an important role in term of support.

Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure.  Thursday’s bullish engulfing bar is another clear indication of demand overwhelming supply.  Momentum indicator had shifted higher from near overbought zone, allowing additional upside probing.  This increases the probability for a rapid run toward the strong band of resistance between the 4218 and 4300 level, or the prior high set in late April and the lower boundary of the red band.  An upside follow-through will confirm this.

For now, 4160 is the line in the sand.  We’d turn particular bearish if the index closes twice below that level.  With that said, a failure to hold above 4160 indicated that long-term buying pressure has been exhausted and a much deeper pullback should be expected and we’re looking at the low 4000s, based on the trend channel moving average.

On the upside, S&P has 4218 to trade against.  A sustain breakout above that level will trigger acceleration toward the upper boundary of the red band.

Short-term trading range: 4026 to 4300.  S&P has support around 4160.  A failure to hold above that level has measured move to around 4026.  Resistance is around 4218.  A sustain advance above that level has measured move to 4300.

Long-term trading range: 3650 to 4600.  S&P has support near 3900.  A failure to hold above that level has measured move to 3650.  The index has resistance near 4250.  A close above that level has measured move to 4600.

In summary, based upon recent trading actions, an important near-term low had been established and the S&P is in an early stage of a new upswing that targeting the prior high set in late April.  Over the next few days, traders should look for upside follow-through as confirmation and extension to Thursday’s bullish signal.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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