CME Group (CME) stock has underperformed the S&P 500 index since the market low in April. While the S&P was making higher highs and lower lows in August and September, the CME was breaking below key support levels. However, the recent breakout indicates that CME has entered a new accumulation phase, meaning further upside potential for this futures contract. After falling below the 50-day moving average in August, CME tested the 200-day moving average near $257. Throughout September and October, prices continued to rebound from the 200-day moving average, confirming price support at the early September lows. Throughout October, the Relative Strength Index (RSI) fluctuated between 40 and 60 levels during this correction phase. A neutral reading on the RSI, along with a flat moving average, meant that CME was exhibiting a typical sideways trend lacking strong momentum. Earlier this month, a strong rise in the RSI confirmed a breakout of short-term resistance near $275. Due to the strength of the price action and improving momentum measurements, CME appears to have ended its period of consolidation and entered a new phase of accumulation. During the October consolidation period, we noticed that Chaikin Money Flow (CMF) was consistently above the zero level. This suggests that although the price trend remains flat, the volume is indicative of more bullish sentiment due to the higher closing price. A steady upward trend in the cumulative distribution line also supports this positive volume measure, suggesting that there was a kind of “stealth bull phase” for CME as investors piled into the stock during the consolidated period. The weekly chart shows how this recent moving test of support fits into CME’s long-term secular uptrend. The weekly RSI remained above the important 40 level as the price returned to the 40-week moving average, which is very similar to the 200-day moving average. The weekly PPO indicator just experienced a bullish crossover, confirming CME Group’s successful turnaround and new accumulation phase. We note many similarities between the current rally and the August 2024 breakout. There, a break above trendline resistance led to further gains in the coming months. Given the near-term breakout and supportive volume readings, as well as the bullish composition on the weekly chart, we believe this financial infrastructure move has further upside potential. -David Keller, CMT Marketmisbehavior.com Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
