Tag Archives: S&P 500 index

S&P Short-term Overbought Condition Might Keep Buyers At Bay

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 Tuesday July 7, 2020.

Wall Street’s major indexes were up more than 1 percent on Monday as data showing unexpected growth in the U.S. services sector last month and a revival in China’s economy boosted optimism, helping investors look past a surge in new coronavirus cases at home.  The Dow Jones Industrial Average rose 1.8 percent to 26,287.03. The S&P popped 1.6 percent to 3,179.72. The Nasdaq Composite hit an all-time high, surging 2.2 percent to 10,433.65.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose about 1 percent to 27.94.

Tech was among the biggest gainers, with FANG and chip stocks driving the move higher. Xilinx (XLNX) surged 6 percent after Goldman Sachs (GS) analysts reiterated a buy rating on the stock and a price target of $113, noting the company’s diversified end-market product mix.  As such, the iShares PHLX Semiconductor ETF (SOXX) rose 2.64 percent on the day and is up about 11 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in SOXX.

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 – iShares PHLX Semiconductor ETF (weekly)

Our “U.S. Market Trading Map” painted SOXX bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, SOXX has been basing sideways near the 270 zone as it worked off overbought conditions.  Monday’s bullish breakout suggested that the 5-week congestion trading pattern had resolved itself into a new upswing.  A close above 276 on a weekly closing basis will confirm this and trigger acceleration toward the 338 zone, or the 127.2% Fibonacci extension.

SOXX has support near 257.  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 30, 2020 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”]

Monday’s upside follow-through confirmed last week’s bullish breakout above the closely watch 3100 zone. Money Flow measure is at the highest level going back to early 2019, indicating a strong net demand for stocks.  This is a positive development, will continue to provide support for further advance.  Traders however, must be mindful that not only that the market is short-term overbought following recent advance, the S&P is now trading against the strong band of resistance between 3190 and 3230 zone, or the early June breakdown point. So it should not be surprising to see some short-term setbacks in the coming days.

As for support, S&P must holds above 3100 on a closing basis to prevent a test of the more important support at the 3000 zone, or the trend channel moving average.  That level is significant in charting terms.  A close below that level is outright bearish and a much deeper pullback should be expected and we’re looking at 2900-2700.

Short-term trading range: 3100 to 3230.  S&P has a strong band of support near 3100.  A failure to hold above that level has measured move to around 3000.  There is a strong band of resistance between 3190 and 3230.  A breakout above that level has measured move to around 3300.

Long-term trading range: 2190 to 3600.  S&P has support near 3000.  A failure to hold above that level has measured move to 2700.  The index has resistance near 3300.  A close above that level has measured move to 3600.

In summary, while short-term overbought condition could keep buyers at bay, the early June’s congestion zone, between S&P’s 3190 and 3230, 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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