Tag Archives: stimulus cash

S&P Could Test 4200 On Overbought Strength Before Significant Pullback Unfolds

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday April 16, 2021.

Stocks closed higher Thursday, supported by a backdrop of surging retail sales, corporate earnings that beat estimates and a plunge in U.S. bond yields.  For the day, the Dow Jones Industrial Average rose 0.90 percent to 34,035.99. The S&P added 1.11 percent to 4,170.42, and the Nasdaq Composite was up 1.3 percent.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 2 percent to 16.57.

Retail sales rose 9.8 percent, the largest monthly gain since last May, in a further sign that the U.S. consumer, awash with stimulus cash, remains in good shape.  As such, the SPDR S&P Retail ETF (XRT) rose 0.41 percent on the day and is up nearly 44 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XRT.

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 S&P Retail ETF (weekly)

Our “U.S. Market Trading Map” painted XRT bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XRT has been trending higher after March correction found support near the 2020 rising trend line.  The overall technical backdrop remains supportive of further advance.  So it seems to us that the rally could carry XRT above the 100 zone, or the prior high set in earlier this year, and up to the next level of resistance at the 120 zone, or the 127.2% Fibonacci extension.

XRT has support near 87.  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 March 26, 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”]

Big picture remains the same.  S&P continues drifting higher, using the lower boundary of the red band as support.  Money Flow measure trended higher from above the zero line, indicating a positive net demand for stocks.  Momentum has been strengthened but the return of overbought conditions on an intraday basis will put a cap on the upside.  With this in mind, we’d look to reduce exposure into overbought strength, which might take the S&P closer to 4200 before a significant pullback unfolds.

While more backing and filling would not be a surprise, if the S&P could hold above 4100 then a move above 4200 would be easier to achieve.

Short-term trading range: 4140 to 4200.  S&P has support around 4140.  A failure to hold above that level has measured move to around 4100.  Resistance is around 4200.  A sustain advance above that level has measured move to 4225.

Long-term trading range: 3550 to 4500.  S&P has support near 3900.  A failure to hold above that level has measured move to 3550.  The index has resistance near 4200.  A close above that level has measured move to 4500.

In summary, overbought conditions have returned on an intraday basis but momentum remains supportive so downside risk could be limited. It is possible that S&P could continue to drift higher as trading sentiment remains strong.  With this in mind, we’d look to reduce exposure into overbought strength, which might take the S&P closer to 4200 before a significant pullback unfolds.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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