Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday June 24, 2020.
We’ve noted in the previous Market Outlook that: “there is an orderly consolidation, which represents digestion period. The overall technical backdrop remains positive suggesting downside risk could be limited. As for strategy, pullback will present a buying opportunity, while selling into strength may not be the best strategy in a market considered likely to bounce back.” As anticipated, stocks rose Tuesday on hopes of additional stimulus checks from Congress, and despite coronavirus cases surging in Florida and California. The Dow Jones Industrial Average climbed 0.5 percent to 26,156.10. The S&P added 0.4 percent to 3,131.29. The Nasdaq Composite rose 0.7 percent to 10,131.37, a fresh record high. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 1 percent to 31.37.
Homebuilders attracted strong buying support Tuesday after the latest data showed new home sales jumped 16.6% in May, blowing past estimates of a 2.9% rise. Sales of newly built homes jumped far more than expected, up nearly 13% annually, according to the U.S. Census. As such, the SPDR S&P Homebuilders ETF (XHB) rose 1.15 percent on the day but is down more than 3 percent YTD, roughly inline with the S&P. Now the question is what’s next? Below is an update look at a trade in XHB.
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 Homebuilders ETF (weekly)
Our “U.S. Market Trading Map” painted XHB bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XHB has been basing sideways using the 1-year moving average as support after the March’s massive rally ran into resistance at the late February breakdown point. This week’s bullish reversal suggested that the support would hold and opened up for a retest of the early June high, around 46.70. A close above that level on a weekly closing basis signify an upside breakout and setting the stage for a retest of the all-time high set in February, just above 49.
XHB has support just below 42. 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 16, 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”]
S&P climbed up to test the upper limit of the sideways trading range that has been in place since mid-June after crossed above the important sentiment 3100 mark on Monday. The late day selloff suggested that most of the potential buyers at this level had already placed their bets. The next batch of buyers typically sits at a much lower level. While more backing and filling would not be a surprise, a failure to hold above 3100 would see a pickup in volatility and a test of the more important support at the 2965 zone should be expected.
Short-term trading range: 3100 to 3155. S&P has support near 3100. A failure to hold above that level has measured move to around 2965. The index has resistance near 3180. A breakout above that level has measured move to around 3220.
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, S&P rally attempt failed at formidable resistance. There is a higher than average odds that the late day selloff will momentum but the bulls will continue to have the benefit of the doubts as long as S&P hold above 3100. A failure to hold above that level, meanwhile, indicated that most of the potential buyers at this level had already placed their bets. The next batch of buyers typically sits at a much lower level and we’re looking at 2965.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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