Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday December 11, 2020.
We’ve noted in the previous Market Outlook that: “S&P rally attempt failed at formidable resistance. If the index fails to hold above 3700 this week, then the next stop will be 3625 with the possibility of a brief breakdown below that level.” As anticipated, S&P ended lower Thursday as the biggest jump in weekly jobless claims since March stoked fears about the recovery at a time when lawmakers struggle to reach a consensus on a stimulus program. For the day, the bench mark gauge dipped 0.1 percent to 3,668.10. The Dow Jones Industrial Average fell 0.2 percent to 29,999.26. The Nasdaq Composite outperformed with a 0.5 percent gain, closing at 12,405.81. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose less than 1 percent to 22.44.
In technology, investor sentiment remained timid following weakness in the sector a day earlier, when the FTC and several states sued Facebook for alleged antitrust violations. Facebook (FB), Alphabet (GOOGL), Microsoft (MSFT) and Amazon.com (AMZN) closed in the red, while Apple (AAPL) ended higher. As such, the Technology Select Sector SPDR ETF (XLK) closed slightly higher, up 0.14 percent on the day and is up about 36 percent YTD, outperformed 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 ETF (weekly)
Our “U.S. Market Trading Map” painted XLK bars in green (buy) – see area ‘A’ in the chart. XLK has been on a tear in recent weeks after the mid-October correction found support near the 2020 rising trend line. The early November rally tested resistance at the 127.2% Fibonacci extension, around 128. That level was tested in early September. The overall technical backdrop remains positive, supporting further advance. Over the next few days, traders should monitor the rally and retreat behavior as the 128 zone is tested. A close above that level on a weekly basis would resume the multi-month upswing with upside target around 157, or the 161.8% Fibonacci extension.
The 2020 rising trend line, around 118, represents the logical level to measure risk against. All bets are off should XLK close below that level.
Chart 1.2 – S&P 500 index (daily)
Short-term technical outlook remains bearish (sell). Last changed December 9, 2020 from bullish (buy) – (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
S&P moved down to test support at the lower boundary of the pink band after recent rally ran out of steam near the lower boundary of the red band, just above the important sentiment 3700 mark. In accordance to the Japanese candlestick pattern recognition, Thursday’s narrow range (or neutral) bar indicates uncertainty – traders refuse to press hard one way or the other just because they are not very sure about the near-term direction. This explains why market often uses neutral bar to change direction. Momentum has been weakened but does not appear strong enough to generate a widespread breakdown. Right now, the most important thing to watch is the retreat and rebound behavior near 3630. A close below that level will bring the trend channel moving average, just above 3500, into view.
Short-term trading range: 3500 to 3735. S&P has support near 3630-3600. A failure to hold above 3600 indicated that long-term buying pressure has been exhausted and a much deeper pullback should be expected and we’re looking at 3500, based on the trend channel moving average. Resistance is around 3690. A sustain advance above that level has measured move to around 3735.
Long-term trading range: 2750 to 3730. S&P has support near 3200. A failure to hold above that level has measured move to 3100. The index has resistance near 3700. A close above that level has measured move to 3900.
In summary, S&P traded in narrow trading range as we’re heading into the end of the year. Technical pressures are building up as the market dances its way into an increasingly tight trading range. S&P’s 3630 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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