Tag Archives: XHB

Market Internals Weakened As S&P Tested Key Price Level

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday May 19, 2021.

We’ve noted in the previous Market Outlook that: “although the return of overbought conditions on an intraday basis is keeping buyers at bay, S&P’s 4200 continues to act as price magnet.  Short-term traders can anticipate increase short-term volatility with rapid up and down moves in the market.”  As anticipated, S&P gave up all of the early gains and some more on sharp selling into the close Tuesday as tech stocks gave up gains and energy shares were dragged lower by falling oil prices on fears an Iran nuclear deal will boost global oil supplies.  For the day, the bench mark gauge fell 0.9 percent to 4,127.83. The Dow Jones Industrial Average  gave up 0.8 percent to 34,060.66. The tech-heavy Nasdaq Composite erased a 0.8 percent gain and slid 0.6 percent to 13,303.64.  The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, jumped about 7 percent to 21.28.

Housing starts tumbled 9.5% to a seasonally adjusted annual rate of 1.569 million units last month, the Commerce Department said on Tuesday. Economists polled by Dow Jones had forecast starts falling to a rate of 1.7 million units in April.  As such, the SPDR S&P Homebuilders ETF (XHB) fell 2.30 percent on the day buy is up more than 27 percent YTD, outperformed 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 red (sell) – see area ‘A’ in the chart. over the past few weeks, XHB has been trending lower in a short-term corrective mode after the early March rally ran out of steam just above the closely watch 161.6% Fibonacci extension.  This week’s downside follow-through confirmed last week’s bearish reversal signal.  The correction is testing support at the early 2020 rising trend line, just below 74.  The overall technical backdrop deteriorated following recent selloff, suggesting that the support might not hold for long.  A close below 74 on a weekly closing basis will bring the 59 zone into view.

XHB has resistance around 48.  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 May 14, 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 sold off after the early rally attempt ran out of steam near the lower boundary of the pink band.  That level was tested several times over the past weeks.  Money Flow measure fell below the zero line, indicating a negative net demand for stocks.  Momentum indicator shifted lower from near neutral zone, suggesting further short-term weakness likely.

Over the next few days, it’d be important to watch the retreat and rebound behaviors as the trend channel moving average, currently at 4077, is tested as support.  That level is significant in charting terms. It offered support since the index climbed above it in late 2020.  This history indicating an important role in term of support. While more backing and filling would not be a surprise, a failure to hold above that level would see a pickup in volatility and a test of the more important support at the 3950 zone should be expected.

As for resistance, the lower boundary of the pink band, around 4170, is the line in the sand.  The longer the index holds below that level the more vulnerable it is to lower prices.

Short-term trading range: 4077 to 4170. S&P has support around 4120.  A failure to hold above that level has measured move to around 4077.  Resistance is around 4170.  A sustain advance above that level has measured move to 4200.

Long-term trading range: 3650 to 4700.  S&P has support near 4000.  A failure to hold above that level has measured move to 3650.  The index has resistance near 4350.  A close above that level has measured move to 4700.

In summary, market internals had been weakened as S&P tested formidable resistance at the lower boundary of the pink band.  The longer the index stays near that level, the more vulnerable it is to lower prices.  This is the real danger in the current market.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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