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S&P In Orderly High-level Consolidation

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 Tuesday November 24, 2020.

Stocks rose on Monday after AstraZeneca and the University of Oxford said their coronavirus vaccine was up to 90% effective, becoming the third inoculation this month that was revealed to be effective in trial data.  The market hit its session high in the final hour of trading amid a report suggesting President-elect Joe Biden plans to select former Federal Reserve Chair Janet Yellen as Treasury Secretary.  Biden will nominate Yellen as Treasury Secretary, The Wall Street Journal reported. During her tenure as Fed Chair, Yellen was viewed as pro-stimulus, and if nominated is widely expected to support fiscal-boosting measures to shore up the economy.

For the day, the Dow Jones Industrial Average rose 1.1 percent to 29.591.27. The S&P 500 gained 0.6 percent to 3,577.59, and the Nasdaq Composite advanced 0.2 percent to 11,880.63.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 4 percent to 22.66.

Energy surged on hopes a quicker end to the pandemic could shore up demand. Occidental Petroleum (OXY) led the gains in the sector, up 17 percent.  As such, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) jumped nearly 9 percent on the day but is down more than 40 percent YTD, underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XOP.

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 – SPDR S&P Oil & Gas Exploration & Production ETF (weekly)

Our “U.S. Market Trading Map” painted XOP bars in green (buy) – see area ‘A’ in the chart.  XOP has been on a tear in recent weeks after the late August downswing found support near the March low.  This week’s rally is testing resistance at the one-year moving average, a key technical level based on moving averages.  That level was significant when XOP fell below it in late 2018.  A close above 56 on a weekly closing basis signify a bullish breakout and trigger acceleration toward the 110 zone, or the 23.6% Fibonacci retracement and the falling 4-year moving average.

The early October low, just above 38, represents the logical level to measure risk against.  All bets are off should XOP close below that level.

Chart 1.2 – S&P 500 index (daily)

Short-term technical outlook remains bearish (sell).  Last changed November 18, 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”]

The big picture remains the same.  S&P continues basing sideways using the early November breakout point as support.  Market internal has been strengthened following but upside momentum does not appeared strong enough to generate widespread breakout.  Over the next few days, traders should monitor trading behavior as the 3580 zone is tested as resistance.  That level was significant in charting terms.  A sustain advance above that level will bring the November high into view.

On the downside, early November breakout point, around 3550, represents key support. A failure to hold above that level will turn the short-term trend down and a retest of the trend channel moving average, just above 3400, should be expected.

Short-term trading range: 3480 to 3700.  S&P has support near 3550.  A failure to hold above that level has measured move to around 3480-3430.  Resistance is around 3600.  A sustain advance above that level has measured move to around 3700.

Long-term trading range: 2750 to 3730.  S&P has support near 3200.  A failure to hold above that level has measured move to 3100.  The index has resistance near 3700.  A close above that level has measured move to 3900.

In summary, the big picture remains the same.  There’s an orderly high-level consolidation period near the early November breakout point as support.  Market internal has been strengthened following recent advance but upside momentum does not appeared strong enough to generate widespread breakout.  S&P has 3600 to trade against.  We’d turn particularly bullish if the index closes twice above that level.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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