Tag Archives: Federal Reserve

S&P In Orderly High-level Consolidation Period

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday July 15, 2021.

The S&P eked out a small gain Wednesday, added 0.12 percent to 4,374.30, as an Apple-led rally in tech was kept in check by losses in energy and financial stocks as Federal Reserve Chairman Jerome Powell backed the Fed’s accommodative monetary policy stance.   The Dow Jones Industrial Average added 0.13 percent to 34,933.23. The Nasdaq Composite fell 0.22 percent to 14,644.95.  The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, fell about 5 percent to 16.33.

Energy led the decliners as oil prices fell sharply amid ongoing struggles between OPEC and its allies to reach a consensus on production levels.  UAE Energy Minister Suhail Al Mazrouei said Wednesday that an agreement had not been reached yet with OPEC+ on an extension of an oil supply deal.  As such, the Energy Select Sector SPDR Fund (XLE) fell 2.95 percent on the day but is up more than 34 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.  Over the past few weeks, XLE has been trending lower after the late April ran out of steam near the 4-year moving average.  This week’s selloff pushed the ETF below the late 2021 rising trendline signified a bearish breakout and downside reversal.  The overall technical backdrop deteriorated following recent selloff suggesting that the June selloff might have some legs.  A close below 52 on a weekly closing basis will bring the 38.2% Fibonacci retracement, around 44, into view.

XLE has resistance around 57.  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 July 9, 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”]

The S&P continues basing sideways near the lower boundary of the red band.  As mentioned, the normal behavior for the S&P has been to consolidate and retreated almost every time it traded above that level so there is a high probability that a significant consolidation pattern will again develop in this area.  While seemingly vulnerable to some short-term setback the overall technical backdrop remains positive so pullback should be short-lived.

For now, the lower boundary of the pink band, just below 4300, is the line in the sand.  A failure to hold above it indicated that long-term buying pressure has been exhausted and a much deeper pullback should be expected and we’re looking at the low 4200s, based on the trend channel moving average.

Short-term trading range: 4300 to 4400.  S&P has support around 4362.  A failure to hold above that level has measured move to around 4300.  Resistance is around 4400.  A sustain advance above that level has measured move to 4435.

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, the big picture remains the same.  There’s an orderly high-level consolidation period near S&P’s 4400, which represented the digestion period in the aftermath of the late June rally.  Market internals remains positive and downside momentum does not appear strong enough to generate widespread breakouts.  As for strategy, buying into short-term dips remains the most profitable strategy.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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