The Technical Indicator: Market bears resurface, S&P 500 reverses from major resistance

Against this backdrop, the S&P 500 has balked at major resistance — spanning from about 2,855 to 2,874 — signaling a still bearish intermediate- to longer-term bias. The aggressiveness of the prevailing downturn will likely add color.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -2.85% hourly chart highlights the past two weeks.

As illustrated, the S&P nailed major resistance to conclude last week (2,874).

The specific level matches the January 2018 peak (2,873), also detailed on the four-year chart in the next section.

More immediately, the S&P has extended a pullback from the range top. The 2,760 area marks notable support and closely matched Tuesday’s early session low (2,759.8).

Meanwhile, the Dow Jones Industrial Average DJIA, -2.32% has struggled to sustain a break atop the 24,000 mark.

Tactically, an inflection point matches the Dow’s 20% pullback mark (23,641) from the Dow’s record close (29,551) established Feb. 12.

A deeper floor matches the range bottom (23,095).

True to recent form, the Nasdaq Composite COMP, -3.38% remains the strongest major benchmark.

Recall that the breakout point (8,560) marks initial support.

Monday’s close (8,560.7) matched the inflection point.

Slightly more broadly, the upturn tracked atop the 20-hour moving average, the hallmark of a strong near-term trend.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has reclaimed several headline levels:

• The 50% retracement of the 2020 crash (8,235).
• Resistance matching the September peak (8,243).
• The late-2019 breakout point (8,339).
• The 50-day moving average, currently 8,322.
• The 200-day moving average, currently 8,408.

Against this backdrop, the top of last week’s gap (8,338) matched the former breakout point (8,339) and the Nasdaq initially sustained its gains.

To reiterate, the area broadly detailed above — spanning from about 8,240 to 8,400 — marks the distinction between “corrective bounce” and “legitimate market rally attempt.” A reversal under this area would raise a technical caution flag.

(On a more granular note, the bottom of the April gap (8,200) marks a slightly deeper inflection point.)

Looking elsewhere, the Dow Jones Industrial Average has registered a less aggressive, but still respectable, April recovery attempt.

To reiterate, the rally has thus far stalled around the 24,000 mark. The the 50-day moving average, currently 24,325, is descending toward the range top.

From current levels, an inflection point matches the Dow’s 20% pullback level (23,641) — detailed on the hourly chart — and is followed by the top of the March gap (23,328).

Meanwhile, the S&P 500 has balked near a headline inflection point.

The familiar area matches its breakdown point (2,855) and the descending 50-day moving average, currently 2,841.

Selling pressure has surfaced in this area, placing the S&P back on the defensive early this week.

The bigger picture

Collectively, selling pressure has surfaced this week in the vicinity of several key technical levels.

On a headline basis, the S&P 500 has reversed near its breakdown point (2,855) and the 50-day moving average.

Meanwhile, the Nasdaq Composite is vying to sustain a break atop several inflection points — the 8,240-to-8,400 area — detailed on the daily chart.

This week’s downside follow-through, or lack thereof, will likely add color.

Moving to the small-caps, the iShares Russell 2000 ETF remains the weakest widely-tracked U.S. benchmark.

Still, the small-cap benchmark has sustained a mid-month break to one-month highs.

Tactically, initial support holds in the 116.90-to-117.60 area, and is followed by the 110.50 inflection point.

Meanwhile, the SPDR S&P MidCap 400 ETF is digesting a more decisive rally to one-month highs.

The initial strong-volume spike has been punctuated by a successful test of the breakout point. Constructive price action.

Looking elsewhere, the SPDR Trust S&P 500 has balked at major resistance.

The specific area matches its breakdown point — the 284.80-to-285.50 area, detailed repeatedly — and the 50-day moving average, currently 283.60.

Monday’s close (281.59) registered under resistance, and the SPY has extended its pullback early Tuesday.

Moving to the four-year view, the S&P 500 has staged a massive April reversal amid still technical price action.

Consider that its next designated resistance matches the January 2018 peak (2,873).

Last week’s close (2,874) matched the inflection point, thus far capping the recovery attempt. (Also see the April 14 review.)

The close also marked the S&P’s first weekly close atop the 50% retracement of the 2020 crash (2,793).

So broadly speaking, the S&P 500 has registered a massive early-2020 whipsaw — encompassing the fastest 30%+ downdraft on record — and is currently traversing about the mid-point of the market crash.

Against this backdrop, the S&P has extended an already-respectable pullback from major resistance (2,855) early Tuesday.

Placing a finer point on support, familiar areas stand out:

•  A near-term floor at 2,760, detailed on the hourly chart.
• The 2,742 inflection point, also matching the March 11 close (2,741).
• The S&P’s 20% pullback mark of 2,709.
• Deeper support at 2,650, matching the 38% Fibonacci retracement of the crash.

Against this backdrop, the last support point above — the 2,650 area — also roughly matches the 20-day moving average (2,664) and the 200-week moving average (2,656).

Tactically, the S&P’s recovery attempt is intact barring a violation of the 2,650 area.

But as always, it’s not just what the S&P 500 does, it’s how it does it. The aggressiveness of the prevailing downturn — as measured by volume, breadth and price action — will also likely add color.

Beyond the prevailing recovery attempt, the S&P 500’s backdrop supports a bearish intermediate- to longer-term bias. Notable resistance spans from 2,855 to 2,874, and eventual follow-through atop this area would strengthen the backdrop.

See also: Charting the repair process, S&P 500 approaches next major test.

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 10-year Treasury note yield TNX, -11.66% continues to digest the 2020 downdraft amid flattish April price action.

Still, the yield has tagged a month-to-date low early Tuesday. A close near current levels would mark the yield’s second-lowest close on record.

Tactically, overhead inflection points match the bottom of the early-March gap (0.79), the mid-point of the March range (0.84), and the top of the gap (0.90). (See the April 6 review.)

The April peak (0.784) — established April 7 — matched gap resistance, an area that continues to define the yield’s first notable hurdle.

Conversely, the yield’s record close (0.499) is followed by the absolute record low (0.398), both established March 9. Broadly speaking, market bulls would prefer price action closer to the 0.80-to-0.90 area, away from record lows.

Charting an uneven U.S. sector backdrop

Moving to U.S. sectors, the prevailing backdrop remains uneven. Pockets of resurgence stand out amid extensive damage elsewhere. Five groups exemplify the prevailing backdrop:

To start, the iShares Nasdaq Biotechnology ETF IBB, -2.85% — profiled April 9 — continues to exhibit relative strength.

In fact, the group has reached four-year highs, clearing well-defined resistance amid increased volume. Tactically, the breakout point, circa 124.00, is followed by deeper gap support (119.30).

More broadly, the group is well positioned on the five-year chart, rising from a multi-year base.

Meanwhile, the Utilities Select Sector SDPR XLU, -2.15% is pressing major resistance. (Yield = 3.5%.)

The specific area matches the breakdown point (61.30) and the 50-day moving average, currently 60.60.

Against this backdrop, the group reached resistance amid a strong-volume breakout, and has since flatlined, consolidating amid decreased volume. Notable support matches the March gap and the former range top (57.75). The prevailing rally attempt is intact barring a violation.

More broadly, the utilities tend to outperform amid easing Treasury yields, detailed previously, as the group’s dividend yield becomes comparably more attractive.

Looking elsewhere, the Materials Select Sector SPDR XLB, -2.34% remains incrementally weaker.

Still, the group has sustained its early-April strong-volume breakout.

The prevailing downturn has been fueled by decreased volume, punctuating a failed test of the 50-day moving average (50.80) from underneath.

Scaling down in strength, the SPDR S&P Retail ETF XRT, -2.38% has rallied from eight-year lows.

The prevailing range has formed amid decreased volume, and is effectively defined by the March gap.

Against this backdrop, the 50-day moving average is descending toward the range top (34.70). Eventual follow-through higher would punctuate a bull-flag breakout, strengthening the bull case.

Finally, the Industrial Select Sector SPDR XLI, -2.16% is the weakest of the five groups detailed.

Consider that it remains capped by the bottom of the March gap, underperforming even the widely-disliked retail sector. (The XRT has reclaimed the bottom of the gap, and observed this area as support.)

Though the prevailing recovery attempt is intact — the group is rising amid a series of “higher lows” — its intermediate- to longer-term bias remains bearish pending repairs.

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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.