Tag Archives: Third Point TPRE

S&P In Digestion Period

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 Thursday January 14, 2021.

We’ve noted in the previous Market Outlook that: “there’s an orderly high-level consolidation period near the important sentiment 3800 mark.  The overall technical backdrop remains supportive of further advance, suggesting that S&P will breakout to new high as soon as it works off excessive optimism.”  As anticipated, S&P closed slightly higher on Wednesday, led by tech shares, as political turmoil on Capitol Hill gripped investor attention ahead of the vote in the House to impeach President Donald Trump for an historic second time.

For the day, the broader market index gained 0.2 percent to 3,809.84, and the tech-heavy Nasdaq advanced 0.4 percent to 13,128.95. The Dow Jones Industrial Average underperformed, gave up 0.03 percent to 31,060.47.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 5 percent to 22.21.

Technology stocks kept the broader market above the flatline.  Intel Corporation (INTC) rallied 7 percent to boost tech after the chipmaker confirmed Chief Executive Bob Swan would step down next month following pressure from activist investor Third Point (TPRE).  As such, iShares PHLX Semiconductor ETF (SOXX) rose 0.16 percent on the day and is up 7 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.  SOXX has been on a tear in recent days after breaking above the December high in early January.  This week’s upside follow-through confirmed last week’s bullish signal, increased the probability for a test of the 420 zone, or the 161.8% Fibonacci extension. The overall technical backdrop remains supportive of further advance.  A close above 420 on a weekly closing basis will trigger acceleration toward the 660 zone, or the 261.8% Fibonacci extension.

SOXX has support near 380.  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 January 6, 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”]

Not much has been changed since last update.  The S&P continues basing sideways near the important sentiment 3800 zone.  Market is short-term overbought following recent advance but Money Flow measure is above the zero line, indicating a positive net demand for stocks.  This certainly would argue that the path with least resistance remains to the upside.

Over the next few days, traders should monitor the rally and retreat behaviors as last week’s high, around 3826, is tested as resistance.  A sustain advance above that level will the lower boundary of the red band, just below 3870, into view.

Short-term trading range: 3740 to 3870.  S&P has support near 3770.  Below it, a more significant support is around 3740.  Resistance is around 3826.  A sustain advance above that level has measured move to around 3870.

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, the big picture remains the same.  There’s an orderly high-level consolidation period near S&P’s 3800, which represented the digestion period in the aftermath of the early January rally.  Market internals remains positive and downside momentum does not appear strong enough to generate widespread breakouts.  As for strategy, buying into short-term dips remains the most profitable strategy.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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