The Technical Indicator: Bull trend persists, S&P 500 digests powerful rally atop 20-day volatility bands

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Technically speaking, the U.S. benchmarks are off to a strong 2020 start, rising amid bullish market rotation.

Against this backdrop, the S&P 500 has extended a decisive January breakout, while the small- and mid-caps have belatedly come to life, rising last week amid statistically unusual bullish momentum.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -0.02%  hourly chart highlights the past two weeks.

As illustrated, the S&P is digesting a decisive January breakout. The index has registered consecutive session lows atop the prior session’s high, the earmarks of a powerful uptrend.

Tactically, a near-term floor (3,317) is followed by gap support (3,298). Delving deeper, the prevailing upturn originates from support in the 3,280-to-3,283 area.

Meanwhile, the Dow Jones Industrial Average DJIA, -0.06%  has staged a bull-flag breakout, placing distance atop the 29,000 mark.

The prevailing upturn punctuates a relatively tight four-session range.

Tactically, initial support (29,300) is followed by last week’s gap (29,127) and a firmer inflection point closely matching the 29,000 mark.

Against this backdrop, the Nasdaq Composite COMP, +0.05%  is also persistently grinding out record highs.

Recall that its prevailing uptrend is unusually strong, tracking atop the 20-hour moving average.

Separately, the index continues to maintain its first potential support, also the hallmark of a strong trend. See recent inflection points at 9,298, 9,235 and 9,158.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has truly taken flight. Six of its prior eight closes have marked record closes.

Though a cooling-off period remains overdue — and may be underway, to start this week — the Nasdaq’s decisive break to record territory is longer-term bullish. Tactically, near-term support is detailed on the hourly chart, areas followed by the breakout point (9,093) and the 2019 peak (9,052).

Looking elsewhere, the Dow Jones Industrial Average has also knifed to record territory.

Consider that the January peak (29,373) has thus far registered about 627 points, or 2.1%, under the 30,000 mark.

On a more granular note, the Dow concluded last week with a bullish two standard deviation breakout, notching consecutive closes atop the 20-day Bollinger bands for the first time since 2018.

As always, consecutive closes atop the bands signal a tension between time horizons. Though near-term extended, and due to consolidate, bullish momentum has registered as statistically unusual, likely laying the groundwork for longer-term gains.

(The Nasdaq concluded last week with a lone close atop the Bollinger bands.)

Meanwhile, the S&P 500 has knifed to uncharted territory atop the 3,300 mark.

Here again, the S&P concluded last week with consecutive closes atop the 20-day Bollinger bands, punctuating a bullish two standard deviation breakout.

Recall that the S&P registered three December closes atop the bands, across a four-session span, bullish price action preceding the powerful January follow-through.

The bigger picture

As detailed above, the major U.S. benchmarks are off to an unusually strong 2020 start. Each index has knifed to record highs amid January selling pressure that remains conspicuously absent.

Moving to the small-caps, the iShares Russell 2000 ETF has belatedly broken out, knifing to 15-month highs.

Perhaps more notably, the prevailing upturn has been punctuated by three straight closes atop the 20-day Bollinger bands.

So after initially lagging behind to start 2020, the small-cap benchmark has come to life, registering a stronger mid-January breakout than the major U.S. benchmarks.

The prevailing upturn builds on a comparable late-November break atop the volatility bands, and subsequent grinding-higher follow-through.

Meanwhile, the SPDR S&P MidCap 400 ETF has knifed to all-time highs.

In the process, the MDY has registered four straight closes atop the 20-day volatility bands.

Consider that the January peak (383.41) has already matched its near-term projected target (383.50) detailed previously.

(To review, the Nasdaq has registered a lone January close atop the bands, while the S&P 500 and Dow industrials have notched consecutive closes atop the bands. The more unusual mid-month strength has surfaced amid the small- and mid-caps.)

Looking elsewhere, the SPDR Trust S&P 500 has extended its uptrend, reaching another record high.

From current levels, notable support matches the breakout point, the 324.90-to-325.20 area. Delving deeper, the prevailing trend continues to track the 20-day moving average, currently 325.00.

Placing a finer point on the S&P 500, its backdrop remains firmly bullish.

Recall that its near-term trend is unusually strong, generally tracking atop the 20-hour moving average. Though the trend’s prevailing pace will not be sustainable, its persistence is consistent with a firmly-bullish longer-term outlook.

Separately, but similarly, recall the S&P’s December breaks atop the 20-day Bollinger bands, statistically unusual price action preceding the powerful January rally. (See the Dec. 23 review.)

Tactically, the 20-day moving average, currently 3,260, is followed by support matching the January low (3,215). The S&P has registered just one close under the 20-day average since Oct. 11.

Delving deeper, inflection points match the 50-day moving average, currently 3,182, and the December breakout point (3,154). The S&P’s intermediate-term bias remains bullish barring a violation of these areas.

More broadly, the mid-January market rotation — including the small- and mid-caps’ resurgence — incrementally strengthens an already firmly-bullish backdrop.

Also see: Charting a bullish 2020 start: S&P 500 extends break to record territory.

Tuesday’s Watch List

The charts below detail names that are technically well positioned. These are radar screen names — sectors or stocks poised to move in the near term. For the original comments on the stocks below, see The Technical Indicator Library.

Drilling down further, the SPDR Gold Shares ETF GLD, -0.05%  is acting well technically.

The shares started 2020 with a strong-volume breakout, knifing to six-year highs. The upturn builds on the decisive December trendline breakout.

Underlying the upturn, its relative strength index (not illustrated) has registered its best level since June — also the second-best level on record — likely laying the groundwork for longer-term follow-through. Tactically, the prevailing range bottom (145.10) is followed by gap support around 144.20 and 141.90. The prevailing rally attempt is firmly intact barring a violation.

More broadly, the shares remain well positioned on the 10-year chart, rising from a bullish continuation pattern pinned to the steep mid-2019 rally.

Looking elsewhere, the Financial Select Sector SPDR XLF, -0.13%  is digesting a strong late-2019 rally. Significant overhead matches three inflection points:

• The 2007 peak (30.97).
• The 2019 peak (31.04).
• The early-2020 peak (31.10).

Against this backdrop, the prevailing tight five-week range signals muted selling pressure near major resistance, improving the chances of eventual follow-through. Tactically, notable support (30.30) closely matches the December gap and the 50-day moving average. A breakout attempt is in play barring a violation.

More broadly, the group remains well positioned on the three-year chart, rising from a massive head-and-shoulders bottom.

Moving to specific names, Home Depot, Inc. HD, +0.65%  is a Dow 30 component coming to life. (Yield = 2.3%.)

As illustrated, the shares have staged a strong-volume breakout, knifing atop the breakdown point and the 50-day moving average. The breakout punctuates a successful test of the 200-day moving average at the December low.

Underlying the upturn, Home Depot’s relative strength index (not illustrated) has registered four-month highs, improving the chances of longer-term follow-through.

Tactically, the former range top pivots to support, circa 225, and the prevailing rally attempt is intact barring a violation.

Initially profiled Nov. 7, Advanced Micro Devices, Inc. AMD, +0.69%  has returned 40.4% and remains well positioned.

Technically, the shares have staged a bull-flag breakout, edging to record territory amid a volume uptick.

Trendline support closely tracks the 20-day moving average, and is rising toward the January range bottom (47.90). The prevailing uptrend is firmly intact barring a violation. (The trend originates from the 200-day moving average at the October low.)

Note that the company’s quarterly results are due out Jan. 28.

Marvell Technology Group, Inc. MRVL, -3.49%  is a well positioned large-cap semiconductor name.

As illustrated, the shares have edged to 13-year highs amid a volume spike. The upturn punctuates a prolonged bullish continuation pattern — also illustrated on the three-year chart — opening the path to potentially material follow-through.

Tactically, the breakout point (27.90) is followed by the 50-day moving average, currently 26.28. The 50-day has marked a recent inflection point, and a sustained posture higher supports a bullish bias.

Finally, Bluebird Bio, Inc. BLUE, -3.73%  is a well positioned large-cap biotech name.

Technically, the shares have edged to three-month highs, clearing resistance matching the December peak.

The strong-volume breakout — combined with an uptick in the 50-day moving average — confirms the trend shift signaled late last year.

Tactically, an intermediate-term target projects to the 105 area. Conversely, the breakout point (95.20) pivots to support. The prevailing recovery attempt is intact barring a violation.

Editor’s Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column each market day, click here.

Still well positioned

The table below includes names recently profiled in The Technical Indicator that remain well positioned. For the original comments, see The Technical Indicator Library.