Tag Archives: financials

S&P Tests Support Turned Resistance

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday March 2, 2021.

We’ve noted in the previous Market Outlook that: “S&P will have a downward bias this week, pressured by short-term negative momentum but we expect support at the trend channel moving average to remain largely intact.  There is a high probability that market is in for a ‘range-bound’ trading environment.  This is a rally and retreat environment. It is not a trending environment. Short-term traders can anticipate continued volatility with rapid up and down moves in the markets.”  As anticipated, stocks made a roaring start to the new month Monday, as financials and tech stocks racked up gains after the U.S. bond yield spike that rattled markets eased and positive vaccine news stoked hopes for a more solid recovery.  The S&P gained 2.4 percent to 3,901.82.  The Dow Jones Industrial Average jumped 2 percent to 31,535.51. The tech-heavy Nasdaq Composite popped 3 percent to 13,588.83.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 16 percent to 23.35.

Financials were also in favor, with Goldman Sachs Group (GS), Bank of America (BAC) up more than 3%, while Citigroup (C) rallied 6% as Jane Fraser took up the reins on Monday.  Wells Fargo (WFC) said Citi assets are more valuable as a sum of parts rather than a whole, as there is “significant hidden value and trapped capital,” in the business.  As such, the SPDR S&P Bank ETF (KBE) jumped 3.52 percent on the day and is up more than 23 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in KBE.

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 Bank ETF (weekly)

Our “U.S. Market Trading Map” painted KBE bars in green (buy) – see area ‘A’ in the chart. KBE has been on a tear in recent months after the early January correction found support near the late 2020 rising trend line. The early February rally pushed the ETF up against the closely watch 52 zone, or the prior high set in 2018.  This level was tested several times over the past years.  A close above it on a weekly closing basis will break the sideways trend and bring the low 60s into view, or the 127.2% Fibonacci extension.

KBE has support just above 48.  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 March 1, 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”]

As expected, S&P rebounded nicely off support at the trend channel moving average.  Monday’s recovery rally tested resistance at the important sentiment 3900 zone.  That level roughly corresponds with the lower boundary of the pink band.  It was significant when the index fell below it last week.  It’s now acting as strong resistance.  Momentum has been strengthened but does not appear strong enough to generate widespread breakouts.  While more backing and filling would not be a surprise, a consecutive close above 3900 is required to neglect the downward trend pressure.  There is a no reason to turn particularly bullish until this area is eclipsed.

For now, the trend channel moving average, just above the important sentiment 3800 mark, represents key support.  If it closes below that level, the next leg is likely lower, and we’re looking at 3700.

Short-term trading range: 3800 to 3970.  S&P has support around 3800.  A failure to hold above that level has measured move to around 3700-3670.  Resistance is around 3900.  A sustain advance above that level has measured move to 3970.

Long-term trading range: 3300 to 4300.  S&P has support near 3600.  A failure to hold above that level has measured move to 3300.  The index has resistance near 4000.  A close above that level has measured move to 4300.

In summary, Monday’s recovery rally is testing ‘support turned resistance’ near S&P’s 3900.  While the near-term technical background skews toward further short-term gains, the longer the index stays below that level, the more vulnerable it is to lower prices.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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