Michael Ashbaugh

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Jan. 21, 2020, 12:55 p.m. EST

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

Focus: Gold sustains 2020 breakout, Financials challenge record highs, GLD, XLF, HD, AMD, MRVL, BLUE

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By Michael Ashbaugh, MarketWatch

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, 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 /zigman2/quotes/210599714/realtime SPX -3.35%  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 /zigman2/quotes/210598065/realtime DJIA -3.56%  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 /zigman2/quotes/210598365/realtime COMP -3.71%  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.)

/zigman2/quotes/210599714/realtime
US : S&P US
3,225.91
-111.84 -3.35%
Volume: 2.63B
Feb. 24, 2020 4:04p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,961.08
-1,031 -3.56%
Volume: 436.91M
Feb. 24, 2020 4:04p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
9,221.28
-355.31 -3.71%
Volume: 2.74M
Feb. 24, 2020 4:04p
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