Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday June 21, 2021.
Equity market sold off sharply Friday as St. Louis Federal Reserve President James Bullard spooked the market after making a case for an earlier-than-expected rate to keep handle on inflation. Bullard, a non-voting Fed member, said he expected the first rate hike by the end of the 2022, earlier than the Fed’s current projections, which indicate lift in 2023. For the day, the S&P fell 1.37 percent, the Dow Jones Industrial Average slumped 1.58 percent and the Nasdaq Composite was down 0.92 percent. The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, surged more than 16 percent to 20.70.
Energy stocks are set for a second-weekly loss even as the oil prices remained firm. As such, the Energy Select Sector SPDR Fund (XLE) tumbled 2.96 percent on the day but is up more than 38 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in XLE.
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 – Energy Select Sector SPDR Fund (weekly)
Our “U.S. Market Trading Map” painted XLE bars in red (sell) – see area ‘A’ in the chart. XLE has been on a tear in recent days after the March correction found support near the late 2020 rising trend line. The late April rally pushed the ETF up against the closely watch 58 zone, or the 4-year moving average and the 61.8% Fibonacci retracement. Last week’s selloff suggested that the resistance would hold at least for the time being. Over the next few days, traders should monitor the retreat and rebound behaviors as the 50 zone is tested as support. That level was significant when the ETF climbed above it in late 2020. A close below that level on a weekly closing basis will bring the 45 zone into view.
XLE has resistance around 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 remains bearish (sell). Last changed June 16, 2021 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 trend channel moving average, the level that offered support since the index reached an interim low in late 2020. Money Flow flashed a bearish signal as trend lower from below the zero line, suggesting that the bears were more aggressive as prices fell than the bulls were as prices climbed. This is a negative development, indicating that most of the potential buyers at this level had already placed their bets. The next batch of buyers typically sits at a much lower level. While more backing and filling would not be a surprise, consecutive close below the trend channel moving average, currently at 4181, would see a pickup in volatility and a test of the more important support at the 4045 zone, based on the bottom of its short-term trading range, should be expected.
For now, the important sentiment 4200 mark represents key resistance. There is no reason to turn particular bullish until this level is eclipsed.
Short-term trading range: 4140 to 4235. S&P has support around 4140. A failure to hold above that level has measured move to around 4050. Resistance is around 4200. A sustain advance above that level has measured move to 4235-4265.
Long-term trading range: 4100 to 4400. S&P has support near 4100. A failure to hold above that level has measured move to 3750. The index has resistance near 4400. A close above that level has measured move to 4750.
In summary, S&P fell below the trend channel moving average, the level that offered support since the index reached an interim low in late 2020. Market internal deteriorated following selloff suggested that most of the potential buyers at this level had already placed their bets. The next batch of buyers typically sits at a much lower level. With this in mind we’d look to reduce exposure into short-term intraday bounces.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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