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Michael Ashbaugh

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March 26, 2019, 12:41 p.m. EDT

Bull trend survives shot across bow, S&P 500 narrowly holds major support

Focus: 10-year yield asserts lower plateau, Financials challenge key trendline, TNX, XLF, MSFT, AVGO, YY

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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 major U.S. benchmarks have weathered a respectable late-month market downdraft — at least so far.

On a headline basis, the S&P 500 has narrowly maintained major support — notching consecutive closes closely matching the 2,800 mark — and the successful retest preserves a guardedly bullish bias.

Before detailing the U.S. markets’ wider view, the S&P 500’s /zigman2/quotes/210599714/realtime SPX +1.23%  hourly chart highlights the past two weeks.

As illustrated, the S&P has absorbed a respectable pullback from five-month highs.

Recall that major support broadly spans from about 2,800 to 2,817, an area detailed previously. Last week’s close (2,800) matched the lower limit, and material downside follow-through has been absent.

Tuesday’s strong start punctuates a shaky, but thus far successful, retest.

Meanwhile, the Dow Jones Industrial Average has pulled in from three-week highs.

The prevailing downturn punctuates a failed retest of the December peak (25,980) an area also illustrated on the daily chart.

Conversely, an inflection point matches the June peak (25,402) an area the Dow has initially maintained.

Against this backdrop, the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.17%  has ventured under major support.

The specific level matches its breakout point — the 7,670-to-7,677 area — also illustrated below.

Still, recall that last week’s close (7,643) matched familiar support at the early-March peak (7,643).

The Nasdaq’s downturn mirrors the S&P 500’s to the extent that both benchmarks violated the breakout point — at S&P 2,817 and Nasdaq 7,677 — and subsequently pulled in to slightly deeper support.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has pulled in respectably from five-month highs. To reiterate, last week’s close (7,643) registered under the breakout point (7,670) and matched slightly deeper support.

Still, the Nasdaq has maintained its 20-day moving average (7,614), a widely-tracked near-term trending indicator. Tuesday’s strong start places the Nasdaq back atop the breakout point (7,670) though as always, it’s the session close that matters.

Combined,the late-March technical damage has been relatively contained, punctuated by an absence of material downside follow-through.

Looking elsewhere, the Dow Jones Industrial Average remains the weakest big three benchmark.

Market bears will point to a topping formation punctuated by a “lower high” at the March peak, and recently capped by the 20-day moving average. (Market bulls will point to a healthy consolidation phase, laying the groundwork for a pending breakout attempt. The Nasdaq and S&P 500 have recently broken out.)

A persistent Boeing-fueled headwind has contributed to the Dow’s late-March jagged price action.

Tactically, the index has initially maintained the 25,400 support, an area closely followed by the 50-day moving average, currently 25,364. The Dow’s intermediate-term bias remains bullish barring a violation.

Meanwhile, the S&P 500 has narrowly maintained major support spanning from about 2,800 to 2,817.

To reiterate, last week’s close (2,800) matched the lower limit and the S&P has rallied from this area early Tuesday.

The bigger picture

As detailed above, the major U.S. benchmarks have weathered a respectable late-month market downturn — at least so far.

Recall that Friday marked the biggest single-day downdraft since Jan. 3, and registered as technically aggressive, inflicting damage in spots. (Most directly damaging the financials, as partly detailed in the next section.)

Moreover, the downturn was fueled by firmly bearish internals, including a nearly 7-to-1 down day on the NYSE. (A “down day” means that declining volume surpassed advancing volume by the stated margin.)

And as always, two 9-to-1 down days — across about a seven-session window — would reliably signal a major trend shift. Recall that the 2019 rally originated from two 9-to-1 up days across a precisely seven-session window.

So while the S&P 500’s intermediate-term bias remains bullish , a comparably aggressive follow-through downdraft, across about the next week, remains a pending “watch out.”

Moving to the small-caps, the iShares Russell 2000 ETF is not acting well technically.

The small-cap benchmark has violated its 50-day moving average, also notching a “lower low” amid a volume spike.

Tactically, resistance broadly spans from 150.61 to 151.90, levels matching the early-March low and the 50-day moving average. A close higher would place the IWM on firmer ground.

Pronounced regional bank weakness, amid the yield curve’s recent inversion, has contributed to small-cap underperformance.

Meanwhile, the SPDR S&P MidCap 400 is retesting notable support. Two inflection points stand out:

+36.32 +1.23%
Volume: 3.36B
May 26, 2020 5:20p
US : U.S.: Nasdaq
+15.63 +0.17%
Volume: 4.13M
May 26, 2020 5:16p
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