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Michael Ashbaugh

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May 1, 2018, 12:51 p.m. EDT

Charting a bearish market backdrop as seasonal headwind (May) kicks off

Focus: U.S. dollar takes flight amid persistent financial sector sluggishness, UUP, XLF, AMD, WUBA, YUMC

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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 reached the worst six months seasonally — May through October — against an already bearish-leaning backdrop.

On headline basis, the S&P 500 remains capped by major resistance, while elsewhere, an ominous chart pattern continues to take shape on the Nasdaq Composite.

Before detailing the U.S. markets’ wider view, the S&P 500’s /zigman2/quotes/210599714/realtime SPX -3.37%  hourly chart highlights the past two weeks.

As illustrated, the S&P remains capped by well-defined overhead.

Familiar resistance matches the 2017 close (2,673) and is followed by the 50-day moving average, currently 2,685.

More broadly, resistance closely matches the S&P’s downtrend from the March peak.

Similarly, the Dow Jones Industrial Average is traversing a jagged near-term range.

Here again, the Dow has struggled to reclaim its breakdown point (24,328) and remains capped by the more distant 50-day moving average.

Meanwhile, the Nasdaq Composite continues to whipsaw amid technical price action.

The index notched consecutive closes last week matching the 7,120 resistance — Thursday at 7,119 and Friday at 7,120 — before extending the pullback slightly to conclude April.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has recently whipsawed between the 7,000 mark and the 50-day moving average.

Recall that the late-April closing low (7,003.7) matched the 2017 peak (7,004).

More broadly, the Nasdaq’s intermediate-term bias remains bearish.

A developing head-and-shoulders top — defined by the January, March and April peaks — remains in progress. The bearish pattern is capped by the March island reversal.

Looking elsewhere, the Dow Jones Industrial Average is traversing a relatively wide range.

Tactically, near-term support matches the late-April low (23,823), and is followed by the 200-day moving average, currently 23,727.

As always, the 200-day is a widely-tracked primary trending indicator, and an eventual violation would raise a technical red flag.

Meanwhile, the S&P 500’s intermediate-term bias remains bearish-leaning.

Familiar resistance broadly spans from 2,673 to 2,695, the latter matching the 2017 peak.

This area also currently matches trendline resistance and the 50-day moving average. An eventual close higher would strengthen the bull case.

The bigger picture

As detailed above, the major U.S. benchmarks have reached the worst six months seasonally — May through October — against an already bearish backdrop.

The April rally attempt registered as lackluster, on balance, and was punctuated by each benchmark’s “lower high.”

Separately, each benchmark has asserted a posture under its downward sloping 50-day moving average, consistent with a bearish intermediate-term bias.

Moving to the small-caps, the iShares Russell 2000 ETF has flatlined just under the 2017 peak (155.41).

Separately, the small-cap benchmark concluded April slightly under the 50-day moving average (154.05) a recent bull-bear inflection point.

Tactically, deeper support (150.50) is closely followed by the 200-day moving average, currently 149.30.

Meanwhile, the S&P MidCap 400’s backdrop remains comparably weaker.

As illustrated, the MDY has established a series of “lower highs” defining trendline resistance.

Conversely, the 200-day moving average, currently 335.70, has thus offered support, though a third retest is within striking distance. As always, major support is frequently violated on the third or fourth independent test.

Against this backdrop, the SPDR Trust S&P 500’s price action remains technical even amid recent volatility.

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