Tag Archives: United Airlines

S&P Will Test 4000 On Overbought Strength Before Significant Pullback Unfolds

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 March 16, 2021.

We’ve noted in the previous Market Outlook that: “overbought conditions have returned on a daily 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.  As for strategy, we’d look to reduce exposure into overbought strength, which might take the S&P closer to 4000 before a significant pullback unfolds.”  As anticipated, S&P 500 a tech-infused rally to record highs Monday, up 0.65 percent to 3,968.94, supported by falling U.S. rates and rising semiconductor stocks that helped brush aside a slip in energy and financials.  The Dow Jones Industrial Average rose 0.5 percent to 32,953.46. The Nasdaq Composite gained 1.1 percent to 13,459.71.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 20.03.

American Airlines and United Airlines shares rose 7.7 percent and 8.3 percent, respectively. Air travel over the weekend hit its highest level in more than a year as the Covid-19 vaccine rolls out and Americans return to vacationing.  As such, the US Global Jets ETF (JETS) jumped 3.72 percent on the day and is up more than 28 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in JETS.

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 – US Global Jets ETF (weekly)

Our “U.S. Market Trading Map” painted XLI bars in green (buy) – see area ‘A’ in the chart. JETS has been on a tear in recent days after the December 2020 correction found support near the 2020 rising trend line.  The February rally pushed the ETF above the closely watch 25 zone, or the 61.8% Fibonacci retracement of the 2020 downswing.  This is a bullish development, suggesting that the entire trend will eventually retrace.  So, it seems to us that this rally could carry JETS above 32, or the early 2020 high.

JETS has support near 25.  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 9, 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”]

Once again, the S&P moved up to test resistance at the lower boundary of the red band after recent pullback found support near the lower boundary of the pink band.  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 4000 before a significant pullback unfolds.

For now, 3900 is the line in the sand.  This level was tested several times over the past weeks.  This history indicated an important role in terms of support.  We’d turn particular bearish if the index closes twice below that level.

Short-term trading range: 3900 to 4000.  S&P has support around 3925.  A failure to hold above that level has measured move to around 3880.  Resistance is around 4000.  A sustain advance above that level has measured move to 4040.

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 broke out to new high Monday, signified resumption of the multi-month upswing.  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 4000 before a significant pullback unfolds.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.