Tag Archives: JPMorgan Chase & Co

S&P in Short-term Reflexive Bounce

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 Friday March 26, 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, S&P snapped a two-day losing streak Thursday, added 0.5 percent to 3,909.52, wiping out a 0.9 percent intraday loss.  The Dow Jones Industrial Average gained 0.6 percent to 32,619.48. The Nasdaq Composite also eked out a 0.1 percent gain to close at 12,977.68.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, tumbled more than 5 percent to 20.05.

The 10-year Treasury yield gained just 1 basis point to 1.64%. The benchmark rate hit a 14-month high last week above 1.7%. Nonetheless, a weaker-than-expected seven-year Treasury auction continued to suggest investors are betting on rates going higher.  The backdrop of rising rates continued to offer support to bank stocks, with JPMorgan Chase & Co (JPM), Wells Fargo (WFC), and Citigroup (C) the standout performers.  As such, the Financial Select Sector SPDR Fund (XLF) rose 1.68 percent on the day and is up about 15 YTD, underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLF.

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 – Financial Select Sector SPDR Fund (weekly)

Our “U.S. Market Trading Map” painted XLF bars in green (buy) – see area ‘A’ in the chart.  Over the past few days, XLF has been trending lower in a short-term corrective mode after the February rally ran out of steam near the 35 zone.  The correction is testing support at the 2020 rising trend line.  This week’s bullish trading actions suggested that the support would hold.  Over the next few days, traders should monitor the rally and retreat behaviors as the 35 zone, is tested as resistance.  A close above that level on a weekly closing basis signifies a bullish breakout and trigger acceleration toward the 127.2% Fibonacci extension, just below 37.

XLF has support just above 32.  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 bearish (sell).  Last changed March 18, 2021 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”]

As expected, S&P rebounded nicely off support at the trend channel moving average.  That level was tested several times over the past months.  This is a short-term positive development.  Momentum indicator shifted higher from near oversold zone, allowing additional upside probing.  Money Flow measure trended higher from above the zero line, indicating a positive net demand for stocks.

Over the next few days, trader should monitor trading behavior as last week’s bearish breakaway gap, around 3950, is tested as resistance.  Some aggressive traders might use this level like a magnet to sell.  There is no reason to turn particular bullish until this level is eclipsed.

Short-term trading range: 3865 to 3950.  S&P has support around 3870.  A failure to hold above that level has measured move to around 3750.  Resistance is around 3950.  A sustain advance above that level has measured move to 4000.

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, S&P rebounded nicely after recent pullback found support near the trend channel moving average.  Our near-term work on price structure and momentum suggested that the index is in a short-term reflexive bounce.  Nevertheless, traders will be looking for the index to close above 3950 before getting aggressively long again.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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