Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday July 5, 2019.
We’ve noted in the previous Market Outlook that: “S&P cleared key resistances, breaking out to new high. Consecutive close above 2960 would signify a breakout and bullish reversal, supporting upside follow-through in the weeks ahead.” As anticipated, stock market finished the abbreviated pre-holiday session on a firmly higher note. The S&P added 0.8 percent, the Dow Jones Industrial Average rose 0.7 percent and the Nasdaq Composite rose 0.8 percent. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell about 3 percent to close at 12.57.
Gold prices edged lower ahead of the upcoming U.S. non-farm payrolls data as investors sought more cues on Federal Reserve’s stance on rate cuts. Nonetheless, the yellow metal was on track to mark its seventh week of gains. As such, the SPDR S&P Metals & Mining ETF (XME) fell 0.32 percent on the day but is up about 7 percent YTD, underperformed the S&P. Now the question is whether the rally has more legs? Below is an update look at a trade in XME.
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 Metals & Mining ETF (weekly)
Our “U.S. Market Trading Map” painted XME bars in green (buy) – see area ‘A’ in the chart. XME has been on a tear in recent weeks after the April selloff found support near the late 2018 low. The June rally is testing resistance at the 30 zone, or the 4-year moving average, the 38.2% Fibonacci retracement and the 1-year moving average. A close above that level signify a bullish breakout with upside target near 32.40, or the early 2019 high.
XME has support near 27. 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 28, 2019 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”]
As expected, S&P moved up to test the important sentiment 3000 mark after breaking above the prior high set in early May. That level is significant in charting terms. It roughly corresponds with the lower boundary of the red band. Technically speaking, a trade above that level indicates overbought conditions – a situation that often precursors to some meaningful consolidations.
Nevertheless, Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure. This certainly would argue that the near-term risk remains to the upside.
Short-term trading range: 2940 to 3000. S&P has a minor support near 2940. A close below that level has measured move to 2900. The index has resistance near 3000. A close above that level has measured move to 3050.
Long-term trading range: 2800 to 3200. S&P has support near 2890. A close below that level has measured move to 2800. The index has resistance near 3070. A close above that level has measured move to 3200.
In summary, although overbought condition is keeping buyers at bay, S&P’s important sentiment 3000 mark will continue to act as price magnet. This could help putting a short-term floor under the market. As for strategy, traders should consider purchase stocks during short-term dips in the market and stay bullish.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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