Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday May 18, 2021.
We’ve noted in the previous Market Outlook that: “S&P tested and held support as the trend channel moving average. Our near-term work on price structure and momentum suggested that the index is in a reflexive bounce. Nevertheless, we will be looking for the index to close above the important sentiment 4200 mark before getting aggressively long again.” As anticipated, stocks closed slightly lower but off intraday low Monday with technology shares weighing the most on the benchmark gauge, while gold prices hit their highest in more than three months as investors sought safety. For the day, the S&P lost 0.25 percent to 4,163.29. The Dow Jones Industrial Average fell 0.16 percent to 34,327.79 and the Nasdaq Composite dropped 0.38 percent to 13,379.05. The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, jumped about 6 percent to 19.92.
Cyclicals were modestly higher, led by energy as oil prices rebounded from their lows of the day. Cabot Oil & Gas (COG), Marathon Petroleum (MPC) and Baker Hughes A Ge LLC (BKR) were among the biggest gainers in the sector. As such, the Energy Select Sector SPDR Fund (XLE) rose 2.32 percent on the day and is up more than 44 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 green (buy) – see area ‘A’ in the chart. XLE has been on a tear in recent days after the early March rally found support near the late 2020 rising trend line. This week’s rally pushed the ETF up against the 54-58 zone, or the prior high set in March and the 61.8% Fibonacci retracement. The overall technical backdrop remains supportive of further advance. So it seems to us that the rally could carry the ETF above 58 and up to the next level of resistance at the 78.6% Fibonacci retracement, around 67.
XLE has support around 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 remains bullish (buy). Last changed May 14, 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”]
S&P printed a narrow range bar near formidable resistance at the lower boundary of the pink band. That level was significant when the index fell below it last week. Money Flow measure is registering a weak bullish signal. The indicator printed a lower high as prices ascending, suggesting less and less money is chasing the rally. Adding to concerns is the return of overbought conditions on an intraday basis. These elements will give the bulls more pressures than they have already had. While more backing and filling would not be a surprise, if the S&P could hold above the trend channel moving average, around 4070, then a move above 4200 would be easier to achieve.
As for support, the trend channel moving average, around 4070, is the line in the sand. While more backing and filling would not be a surprise, a failure to hold above that level would see a pickup in volatility and a test of the more important support at the 3940 zone should be expected.
Short-term trading range: 4071 to 4236. S&P has support around 430. A failure to hold above that level has measured move to around 4071. Resistance is around 4200. A sustain advance above that level has measured move to 4236.
Long-term trading range: 3650 to 4700. S&P has support near 4000. A failure to hold above that level has measured move to 3650. The index has resistance near 4350. A close above that level has measured move to 4700.
In summary, although the return of overbought conditions on an intraday basis is keeping buyers at bay, S&P’s 4200 continues to act as price magnet. Short-term traders can anticipate increase short-term volatility with rapid up and down moves in the market.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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