Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday April 19, 2021.
We’ve noted in the previous Market Outlook that: “overbought conditions have returned on an intraday basis but momentum remains supportive so downside risk could be limited. It is possible that S&P could continue to drift higher as trading sentiment remains strong.” As anticipated, S&P closed at all-time highs Friday, rose 0.4 percent to 4,185.47, as the record run in stocks continued during a week of red-hot earnings and swashbuckling gains for tech. The Dow Jones Industrial Average rose 0.5 percent to 34,200.67. The Nasdaq Composite inched up 0.1 percent to 14,052.34. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 2 percent to 16.25.
Materials were lifted by an almost 9 percent surge in PPG Industries (PPG) in the wake of its better-than-expected first-quarter results and upbeat second-quarter guidance released Thursday. As such, the Materials Select Sector SPDR Fund (XLB) jumped 1.21 percent on the day and is up more than 14 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in XLB.
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 – Materials Select Sector SPDR Fund (weekly)
Our “U.S. Market Trading Map” painted XLB bars in green (buy) – see area ‘A’ in the chart. XLB has been on a tear in recent days after breaking out above the early 2021 high in early March. That level roughly corresponds with the 127.2% Fibonacci extension. The overall technical backdrop remains supportive of further advance. So it seems to us that the rally could carry XLB above the 90 zone, or the 161.8% Fibonacci extension.
XLB has support near 78. 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 remains bullish (buy). Last changed March 26, 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”]
Not much has been changed since last update. S&P continues drifting higher within the confines of the red band, or extreme overbought zone. Momentum indicator is fast approaching level that has been successful in repelling prices in the past months. Nonetheless, market internal remains supportive of further advance. This could help putting a short-term floor under the market. With that said, while more backing and filling would not be a surprise the bulls will continue to have the benefit of the doubts as long as the S&P holds above 4150. A close below that level signals a short-term correction with target around 4040.
Short-term trading range: 4120 to 4245. S&P has support around 4150. A failure to hold above that level has measured move to around 4120. Resistance is around 4200. A sustain advance above that level has measured move to 4245.
Long-term trading range: 3550 to 4500. S&P has support near 3900. A failure to hold above that level has measured move to 3550. The index has resistance near 4200. A close above that level has measured move to 4500.
In summary, last week’s bullish trading actions suggesting that the bulls are still in control of the market. However, given the looming resistance near the 4200 zone on the S&P, there is no big commitment to accumulate stocks aggressively at this point. As for strategy, we’d look to increase upside exposure on pullbacks rather than chasing breakouts.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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