The Technical Indicator: Charting a bull-trend pullback, S&P 500 digests break to record territory

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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.

Technically speaking, U.S. stocks are starting the week on the defensive, pressured amid heightened coronavirus concerns fueled partly by Apple, Inc.’s revenue warning.

Against this backdrop, each big three U.S. benchmark has staged a thus far orderly pullback from its latest record close. Though limited damage has been inflicted, the downturn is worth tracking for potential acceleration.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -0.40%  hourly chart highlights the past two weeks.

As illustrated, the S&P is digesting its latest break to record territory.

Tactically, the breakout point (3,348) is closely followed by support matching the January peak (3,337). This area broadly marks the S&P’s first notable floor.

Meanwhile, the Dow Jones Industrial Average DJIA, -0.67%  has stalled near major resistance.

The specific area spans from about 29,373 to 29,407, levels matching the January peak and Wednesday’s gap.

Last week’s close (29,398) matched the inflection point, punctuating an initially modest pullback from record highs.

Against this backdrop, the Nasdaq Composite COMP, -0.19%  has sustained a recent break to record territory, notching a record close across four of the prior five sessions.

Tactically, the breakout point (9,575) is followed by a firmer floor matching the January peak (9,451).

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has knifed decisively to record territory. Recall that the mid-February spike registered as a bullish two standard deviation breakout, encompassing four closes atop the 20-day volatility bands across a six-session span.

As always, consecutive atop the bands signal a tension between time horizons. Though near-term extended, and due to consolidate, the recently pronounced bullish momentum likely lays the groundwork for longer-term follow-through.

Tactically, the Nasdaq’s first notable floor matches the breakout point (9,451), an area also detailed on the hourly chart. The initial pullback toward support would be expected to draw buyers.

Looking elsewhere, the Dow Jones Industrial Average is digesting a less-decisive break to record highs.

Tactically, a retest of the breakout point (29,373) remains underway. The Dow has ventured under first support to start this week.

More broadly, consider that Dow 30,000 remains within striking distance. Last week’s close (29,398) has registered about 2.0% under the round number.

Meanwhile, the S&P 500 has sustained its recent break to record territory. Recall that the sharp February rally originates from major support (3,215).

From current levels, the breakout point (3,337) remains the S&P’s first notable floor.

The bigger picture

As detailed above, the major U.S. benchmarks are acting well technically against a still comfortably bullish bigger-picture backdrop.

Consider that each index tagged at least one record close last week, punctuating a steep month-to-date rally from the February low.

Moving to the small-caps, the iShares Russell 2000 ETF continues to lag behind.

Still, the small-cap benchmark has reclaimed its breakdown point (167.12), rising from a recent test of the 50-day moving average.

Similarly, the SPDR S&P MidCap 400 ETF has reclaimed its breakdown point (377.60), rising from a mid-month test of the 50-day moving average.

The MDY remains stronger than the small-cap benchmark, rising within striking distance of its record high established last month. (The Russell 2000 has not registered a record high since August 2018.)

Looking elsewhere, the SPDR Trust S&P 500 SPY, -0.38%  has extended a break atop the trendline, rising to tag a record close across four of the prior five sessions.

To reiterate, the breakout point pivots to notable support, an area spanning from about 332.95 to 334.20.

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

To start, the S&P has established consecutive ranges — flag-like patterns — signaling still muted selling pressure near record highs. Bullish price action.

Tactically, the January peak (3,337) marks the first notable floor, and is followed by gap support (3,314). The ascending 20-day moving average, currently 3,316 (illustrated below), matches the latter.

Delving deeper, the 3,280 support matches the early-month gap, and remains a near-term bull-bear inflection point.

More broadly, the 50-day moving average, currently 3,260, is followed by the more important 3,215 support. The S&P has not closed under the 50-day since Oct. 9, a four-month span, the hallmark of a strong trend.

To reiterate, the S&P’s intermediate-term bias remains bullish barring a violation of the 3,215 area.

Conversely, a near- to intermediate-term S&P 500 target projects from the January low to about 3,445, an area detailed previously. The February peak (3,385) has registered within striking distance, about 1.8% under the target

Also see: Charting a bull-flag breakout, S&P 500 extends 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, +1.11%  is acting well technically, rising at least partly (though not exclusively) amid a recent safe-haven trade.

As illustrated, the shares have asserted an orderly 2020 range, digesting the decisive December trendline breakout.

The range top (149.68) matches six-year highs, and is under siege to start this week. A near-term target projects to the 153 area on follow-through.

More broadly, the shares remain well positioned on the 10-year chart, rising from a bullish continuation pattern. Also recall that the GLD’s relative strength index (not illustrated) has recently registered its two best levels on record — the June 2019 and January 2020 prints — laying the groundwork for potentially material longer-term follow-through.

Tactically, a sustained posture atop the breakout point, circa 145.00, supports a firmly-bullish bias.

Initially profiled Jan. 24, Akamai Technologies, Inc. AKAM, +0.76%  remains well positioned.

Technically, the shares have recently knifed to 19-year highs, rising after the company’s strong quarterly results.

The immediate pullback has been comparably flat, fueled by decreased volume, positioning the shares to build on initial spike.

Tactically, the breakout point (96.50) pivots to first support. Delving deeper, the 50-day moving average has marked an inflection point and is rising toward the former range bottom (93.00). A sustained posture atop this area supports a bullish bias.

Nasdaq, Inc. NDAQ, -0.48%  is a well positioned large-cap name.

Late last month, the shares knifed to record territory, rising after the company’s fourth-quarter results. The upturn registered as a bullish two standard deviation breakout, encompassing six straight closes atop the 20-day Bollinger bands.

More immediately, the prevailing pullback has been orderly, placing the shares 3.5% under the February peak. Tactically, a near-term floor matches the post-breakout low (112.94) and the prevailing rally attempt is firmly intact barring a violation.

Monster Beverage Corp. MNST, -0.39%  is a large-cap name positioned to rise.

The shares started February with a strong-volume breakout, rising to challenge the record high (70.22), established January 2018.

The subsequent tight range — or flag-like pattern — signals muted selling pressure near major resistance, laying the groundwork for potentially decisive follow-through. Tactically, trendline support closely matches the January peak (68.01) and a breakout attempt is in play barring a violation.

Finally, American Airlines Group, Inc. AAL, -1.51%  is a large-cap carrier showing signs of life.

As illustrated, the shares have recently knifed atop trendline resistance closely tracking the 200-day moving average. The breakout raises the flag to a potential primary trend shift.

Tactically, the former range top (29.30) closely matches the 200-day, and is followed by the trendline, circa 28.80. The 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.