The Technical Indicator: Charting near-term technical damage, S&P 500 ventures under key support

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Technically speaking, the major U.S. benchmarks have pulled in sharply from recent record highs, pressured amid the most aggressive selling pressure since October.

Against this backdrop, near-term damage has been inflicted to the S&P 500’s backdrop, though its more important intermediate-term bullish bias is intact.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +1.01%  hourly chart highlights the past two weeks.

As illustrated, the S&P has pulled in sharply from record highs.

Tactically, the breakout point (3,258) pivots to resistance, a level matching Monday’s session high (3,258.8).

This is followed by the 20-day moving average, currently 3,275, and resistance matching the former range bottom (3,280). A retest of this area from underneath is underway early Tuesday.

Meanwhile, the Dow Jones Industrial Average DJIA, +0.77%  has extended a pullback from record highs.

Consider that Monday’s close (28,535) registered just three points under the 2019 close (28,538), briefly placing the index in negative year-to-date territory.

From current levels, the 2019 peak (28,701) is followed by the Dow’s former breakout point (28,872), an area also detailed on the daily chart.

Against this backdrop, the Nasdaq Composite COMP, +1.30%  has also plunged from record highs, though this is the strongest major benchmark.

Consider that Monday’s session low (9,088) closely matched its breakout point (9,093), a level detailed repeatedly as the Nasdaq’s first notable floor. This area is also illustrated on the daily chart below.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq formed a bearish key reversal to conclude last week. Recall that the session open registered as a record high, capping a single-day downdraft encompassing the prior session’s range. (In this case, the Nasdaq’s key reversal engulfed the range of the prior five sessions.)

The index subsequently gapped under its 20-day moving average, currently 9,204, notching just its second close lower since October. As always, the 20-day is a widely-tracked near-term trending indicator.

Delving deeper, the Nasdaq has maintained its first notable floor at the breakout point (9,093), preserving a bullish intermediate-term bias.

Looking elsewhere, the Dow Jones Industrial Average has pulled in more aggressively from record highs.

In the process, the index has violated its breakout point (28,872), an area closely matching the 20-day moving average. A swift reversal atop this area would neutralize the late-month downdraft.

Delving deeper, the former range bottom (28,376) roughly matches the 50-day moving average, currently 28,396. An eventual violation of this area would raise an intermediate-term caution flag.

Meanwhile, the S&P 500 formed a bearish engulfing pattern to conclude last week. The session open and close encompassed, or engulfed, those of the prior session, raising the flag to a potential trend reversal.

The S&P subsequently gapped under its 20-day moving average, currently 3,275, and the breakout point (3,258) to start this week.

This marks the S&P’s second close under the 20-day moving average since October. (See the early-December whipsaw, and subsequent bullish reversal. A comparable swift recovery would neutralize the prevailing downdraft.)

The bigger picture

As detailed above, the major U.S. benchmarks have reversed sharply from recent record highs, pressured amid the most aggressive selling pressure since October.

In the process, notable damage has been inflicted for the first time since December, likely raising the flag to a long overdue consolidation phase. An extended chopping around phase, if not a deeper pullback.

Moving to the small-caps, the iShares Russell 2000 ETF has placed distance under its breakout point (167.12).

Also consider that Monday’s close registered fractionally under the 50-day moving average — a widely-tracked intermediate-term trending indicator — for the first time since October.

The small-cap benchmark has reclaimed its 50-day early Tuesday, though the next several sessions will likely add color.

Similarly, the SPDR S&P MidCap 400 ETF has violated its breakout point (377.60), pressured amid increased volume.

Here again, Monday’s close registered fractionally under the 50-day moving average, currently 371.65, raising a technical question mark.

Tactically, the pending retest of resistance (377.60) from underneath should be a useful bull-bear gauge.

Looking elsewhere, the SPDR Trust S&P 500 pulled in from record highs amid increased volume.

Tactically, familiar inflection points match the 20-day moving average, currently 326.66, and the breakout point — the 324.90-to-325.20 area.

The SPY’s trendline closely tracks the 20-day moving average. A swift reversal atop the trendline would neutralize the late-month downdraft.

Placing a finer point on the S&P 500, its aggressive downdraft raises a technical question mark.

To start, the S&P has registered a lone close under its breakout point (3,258) a level defining its first notable support. Monday’s session high (3,258.8) matched resistance.

From current levels, the former range bottom (3,280) roughly matches the 20-day moving average, illustrated below, currently 3,275. A sustained break back atop these areas would neutralize the late-month downdraft.

Conversely, more important support rests at 3,215, a level matching the December gap (3,216), the January low (3,214.6) and the S&P’s former projected target (3,215).

The 50-day moving average, currently 3,202, is rising toward support.

So collectively, an eventual violation of the 3,200-to-3,215 area would mark a material “lower low” — combined with a violation of the 50-day moving average — raising an intermediate-term caution flag.

Beyond technical levels, consider that Monday’s internals pressed bearish extremes: NYSE declining volume has surpassed advancing volume by a greater than 7-to-1 margin.

As always, in a textbook world, two 9-to-1 down days, across about a seven-session window, would reliably signal a bearish trend shift. So the clock is ticking on a potential second shoe to drop over about the next week. (As reference, the early-2019 market rally originated from two 9-to-1 up days across a precisely seven-session window.)

All told, the late-month downturn has inflicted damage, for the first time since December, and a near-term consolidation phase is underway. The S&P 500’s more important intermediate-term bias remains bullish, based on today’s backdrop, though the next several sessions will likely add color.

Also see: Bull trend persists, S&P 500 digests powerful rally atop 20-day volatility bands.

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 United States Oil Fund USO, +0.81%  has extended its January technical breakdown. The fund tracks the price of West Texas Intermediate (WTI) light, sweet crude oil.

Prices have been pressured amid reduced travel expectations, due to the coronavirus, as well as concerns over China’s potential economic slowdown.

Technically, the shares have violated the 200-day moving average, plunging amid a sustained volume increase. The downturn builds on the early-January violation of trendline support, and subsequent failed retest from underneath.

Tactically, the 200-day moving average, currently 12.00, closely matches the breakdown point. An eventual close atop this area would place the brakes on bearish momentum. (Also see the Jan. 23 review.)

Meanwhile, the 10-year Treasury note yield TNX, +2.43%  has reached three-month lows, pressured partly amid a safe-haven trade. As always, Treasury prices and yields are inversely correlated. (As demand spikes for Treasuries, yields turn lower.)

Technically, the downturn confirms the bearish trend shift signaled to start 2020. Recall the early-month violation of trendline support, and subsequent failed test of the 50-day moving average, currently 1.82, from underneath.

As detailed repeatedly, the 50-day moving average effectively defined the 2019 trend, and it remains a useful bull-bear inflection point.

Slightly more broadly, the 200-day moving average, currently 1.93, is descending toward trendline resistance matching the former range top (1.90). The yield’s backdrop supports a bearish-leaning bias pending a close atop this area. (Also see the Jan. 17 review.)

Combined, lower energy prices and interest rates generally present a broad-market tailwind. Consider that the tandem trend shifts detailed above signaled to start 2020, before the coronavirus surfaced. (Put differently, the prevailing downturns are not exclusively the product of an exogenous event.)

Looking elsewhere, the SPDR Gold Shares ETF GLD, -0.76%  has tagged six-year highs amid a safe-haven trade.

The prevailing upturn has been fueled by increased volume, and punctuates a January flag-like pattern underpinned by the breakout point (145.10).

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. (Recall that the GLD’s relative strength index (not illustrated) has recently registered its two best levels on record — the June and January prints — laying the groundwork for potentially material longer-term follow-through.)

Tactically, a sustained posture atop the breakout point supports a firmly-bullish bias. (Also see the Jan. 21 review.)

Finally, the iShares China Large-Cap ETF FXI, +0.48%  has turned firmly lower, pressured amid the coronavirus scare.

The downturn has been fueled by a sustained volume spike, and punctuates a violation of trendline support closely matching the former breakout point (43.00).

As a slight positive, the shares have maintained a floor matching the August gap (39.76), bottoming this week five cents higher. Tactically, a swift reversal atop the 200-day moving average, currently 41.68, would mark a step toward stabilization. The pending retest from underneath will likely add color.

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.