Tag Archives: gold

S&P Bottoming Process Will Take More Time

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday March 24, 2020.

We’ve noted in the previous Market Outlook that: “S&P broke several supports last week, capping off its worst week since 2008. When key supports broke it means that long-term buying pressure has finally been exhausted.”  As anticipated, stocks fell sharply on Monday as U.S. lawmakers failed to push through massive fiscal stimulus to curtail the economic blow from the coronavirus.  The S&P slid 2.9 percent to 2,237.40. The Nasdaq Composite was down just 0.3 percent to 6,860.67.  The Dow Jones Industrial Average fell 3.1 percent to 18,591.93.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 6 percent to 61.59.

Gold prices soared more than 4 percent on Monday after the U.S. Federal Reserve took aggressive new steps to combat the economic impact of the coronavirus outbreak, boosting investor sentiment.  As such, the SPDR Gold Shares (GLD) jumped 4.42 percent on the day and is up more than 2 percent YTD, outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in GLD.

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 Gold Shares (weekly)

Our “U.S. Market Trading Map” painted GLD bars in red (sell) – see area ‘A’ in the chart.  Over the past few weeks, GLD has been trending lower in a short-term corrective mode after the late 2019 ran out of steam near the 2013 breakdown point.  The March correction tested support at the 1-year moving average.  This week’s upside follow-through suggested that the support would hold.  This is a positive development, increased the probability for a retest of the March high of 159.

GLD has support near 138.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2   – S&P 500 index (weekly)

Short-term technical outlook remains bearish (sell).  Last changed March 5, 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 S&P undercut support at the important sentiment 2300 mark Monday after falling below the massive 2-conjoing support near the 2350 zone, or the late 2018 low and the 38.2% Fibonacci retracement of the 2009-2020 major upswing.   This is a negative development, increased the probability of the test of the more important support at the 2000 zone, of the 50% Fibonacci retracement.

If the market is going to find bottom in the near term, we want to see the S&P establishes some trading ranges and climbs above 2375.  Staying below that level heralds more losses.

Short-term trading range: 2200 to 2640.  S&P has support near 2170.  A failure to hold above that level has measured move to around 2000.  The index has resistance near 2370.  A breakout above that level has measured move to around 2640.

Long-term trading range: 2000 to 3000.  S&P has support near 2260.  A failure to hold above that level has measured move to 2000.  The index has resistance near 2600.  A close above that level has measured move to 2900.

In summary, Monday’s bearish break below the important sentiment 2300 mark on the S&P suggested that bottoming process will take more time and probably inflict more damage to stocks.  While there seems to be room to go lower, the selloff is overextended so it should not be surprised to see at least an attempt to rally in the coming days.  However, given the damages done over the past weeks, rebound should be short-lived.  If the market is going to find bottom in the near term, we want to see the S&P establishes some trading ranges and climbs above 2375.  Staying below that level heralds more losses.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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