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S&P In Narrow Trading Range

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday June 9, 2021.

Equity market closed near the flat line Tuesday as the humdrum action continued amid a lack of investor conviction to make bets on stocks ahead of inflation numbers that are expected to show the economy is running hot.  For the day, the S&P benchmark rose less than 1 point to 4,227.26. The Dow Jones Industrial Average dipped 0.1 percent to 34,599.82, while the tech-heavy Nasdaq Composite gained 0.3 percent to 13,924.91.  The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, rose 4 percent to 17.07.

Tech, which is on a three-week winning streak, ended flat as mixed performance in megacap tech despite falling U.S. bond yields  and weakness in semiconductors stocks weighed on the sector.  Google-parent Alphabet (GOOGL), Amazon.com (AMZN), Microsoft (MSFT), and Facebook (FB) ended mostly in the red.  As such, the Technology Select Sector SPDR Fund (XLK) added less and 0.01 percent on the day and is up nearly 8 percent YTD, underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLK.

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 – Technology Select Sector SPDR Fund (weekly)

Our “U.S. Market Trading Map” painted XLK bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, XLK has been trending higher after the late April correction found support near the 2020 rising trend line.  The overall technical backdrop remains positive suggesting the rally might have some legs.  Right now the most important thing to watch is trading behavior as the April high, just above 143, is tested as resistance.  A close above that level on a weekly closing basis will trigger acceleration toward the 160 zone, or the 161.8% Fibonacci extension.

XLK has support around 49.  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 June 4, 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 using the lower boundary of the pink band as support.  That level is significant in charting terms.  It roughly corresponds with the prior high set in May.  Money Flow measure flattened near zero line, indicating a lack of commitment among the bulls. Momentum indicator whipsaws below overbought zone, suggesting further backings and fillings likely.  For now, 4200 is the line in the sand.  We’d turn particular bearish if the index closes twice below that level.

On the upside, resistance is strong near the 4300 zone.  That level roughly corresponds with the lower boundary of the red band.  The normal behavior for the S&P has been to consolidate and retreated almost every time it traded above that level, the way we had earlier this year so there is a high probability that a significant consolidation pattern will again develop in the coming days.  Nonetheless, the overall technical backdrop continues favor the bulls so we believe that any dips are a buying opportunities rather than time to take profits and get out.

Short-term trading range: 4175 to 4300.  S&P has support around 4200.  A failure to hold above that level has measured move to around 4175.  Resistance is around 4236.  A sustain advance above that level has measured move to 4300.

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, technical pressures are building up as the market dances its way into an increasingly tight trading range. S&P’s 4200 marks the inflection point.  A failure to hold above key level indicates a change in sentiment and a much deeper pullback should be expected.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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