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Michael Ashbaugh

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Sept. 22, 2020, 12:52 p.m. EDT

Charting a bearish technical tilt: S&P 500, Dow industrials violate major support

Focus: U.S. sector damage broadens amid familiar pockets of strength, XLF, KRE, XLE, QQQ, XLI, XLB, IYT

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By Michael Ashbaugh, MarketWatch

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The downturn punctuates the S&P’s first closing violation of the 50-day moving average since April.

Tactically, the breakdown point (3,310) pivots to key resistance. A swift reversal back atop this area would place the S&P on firmer technical ground, neutralizing the prevailing downdraft.

The pending retest from underneath should be a useful bull-bear gauge.

Collectively, the S&P 500 has violated its 50-day moving average and major support (3,328) amid aggressive 7-to-1 negative breadth.

The downturn signals a bearish intermediate-term bias pending repairs.

(On a granular, and slightly positive note, the S&P also formed a bullish single-day reversal Monday almost precisely defined by its next notable support. Recall the session low matched the June peak (3,233) and the session close matched the July peak (3,280). The “bullish reversal” nonetheless marked a 1.1% daily downturn.)

Tactically, the S&P 500’s breakdown point — the 3,310-to-3,328 area — pivots to key resistance. A swift reversal atop this area would place the index on firmer technical ground, neutralizing the prevailing downturn. The S&P’s backdrop supports a bearish intermediate-term bias pending such a move.

Also see: Bull trend intact: S&P 500, Nasdaq rally from major support.

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.

U.S. sector damage broadens, though pockets of strength persist

Drilling down further, the September market downturn continues to inflict damage, though familiar pockets of strength persist. Several groups exemplify the prevailing backdrop:

To start, the Financial Select Sector SPDR’s /zigman2/quotes/209660484/composite XLF +1.10%  backdrop has finally cracked.

Specifically, the group has violated major support, an area matching its former range top (24.50) and the 50-day moving average (24.60).

The downturn originates from trendline resistance, and signals an intermediate-term trend shift.

Tactically, a swift reversal atop the breakdown point (24.50) would place the group on firmer technical ground. The pending retest from underneath should add color.

Similarly, the SPDR S&P Regional Banking ETF has signaled a trend shift.

As illustrated, the group has reached two-month lows, violating trendline support on increased volume. The downturn punctuates a head-and-shoulders top defined by the April, June and August peaks.

Here again, the breakdown point (36.90) pivots to key resistance. The group’s backdrop supports a bearish intermediate-term bias pending a close atop this area.

Meanwhile, the Energy Select Sector SPDR has extended to four-month lows.

The prevailing downturn punctuates a flat mid-month rally attempt, and failed test of the breakdown point (34.25) from underneath. Bearish price action.

Looking elsewhere, the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ +0.13%  tracks the Nasdaq 100 Index, and serves as a large-cap technology sector proxy.

This group paced the early-September market downdraft, and remains tenuously positioned.

Technically, the mid-month bounce has been capped by trendline resistance, and punctuated by a strong-volume violation of the 50-day moving average. Shaky price action.

Delving deeper, the former breakout point (268.40) and August low (264.63) likely mark last-ditch support, detailed previously. (See the Sept. 11 review and Sept. 18 review.)

Monday’s close (267.51) registered within the support band. A potentially consequential retest remains underway.

To reiterate, a close under the 264.60 area would mark a “lower low” — combined with a violation of the 50-day moving average — raising an intermediate-term caution flag.

Familiar pockets of strength persist

Conversely, familiar pockets of sector strength stand out:

To start, the iShares Transportation Average /zigman2/quotes/204736489/composite IYT +0.40%  has pulled in from two-year highs amid a downturn that has inflicted limited damage in the broad sweep.

Recall that trendline support tracks the 50-day moving average, and is rising toward the former breakout point (190.00). A posture higher signals a bullish intermediate-term bias.

More broadly, recall that the early-August spike marked a two standard deviation breakout, encompassing four straight closes atop the 20-day volatility bands. The comparably flat prevailing pullback — at least so far — supports a comfortably bullish longer-term outlook.

Meanwhile, the Industrial Select Sector SPDR /zigman2/quotes/202026558/composite XLI +0.14%  has reversed from six-month highs. (Yield = 1.9%.)

In the process, the group’s violation of trendline support has been fueled by a volume spike, the strongest print since June.

Still, the group has maintained support matching its breakout point (76.15) and the ascending 50-day moving average, currently 75.60. Limited damage has been inflicted.

Delving slightly deeper, the 200-day moving average, currently 72.35, marked a former inflection point. Tactically, the group’s rally attempt gets the benefit of the doubt barring a violation of the 200-day.

More broadly, the tandem industrials and transports strength supports the bull case. (Under Dow Theory, a bull market is confirmed when the pair registers new highs concurrently, or closely in time.)

Finally, the Materials Select Sector SPDR /zigman2/quotes/204467551/composite XLB -1.28%  also remains relatively resilient. (Yield = 2.1%.)

Though the group has reversed respectably from last week’s record high, the downturn has been fueled by lukewarm volume.

And here again, the group has initially maintained support matching its breakout point (63.10) and the ascending 50-day moving average, currently 62.80.

Delving deeper, likely last-ditch support (61.30) closely matches the February peak. The group’s bullish intermediate-term bias gets the benefit of the doubt pending a violation.

Summing up the sector backdrop

All told, this week’s downturn has incrementally damaged the U.S. sector backdrop.

On a headline basis, the financials have joined large-cap technology as a key bear-case contributor.

Still, familiar pockets of strength persist amid the September market cross currents. Collectively, the prevailing sub-sector backdrop supports a guardedly bullish-leaning bias, though potentially consequential technical tests remain underway.

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.

Company Symbol* (Click symbol for chart.) Date Profiled
Maxar Technologies, Inc. MAXR Sept. 18
V.F. Corp. VFC Sept. 14
Crocs, Inc. CROX Sept. 14
Toyota Motor Co. TM Sept. 14
Five Below, Inc. FIVE Sept. 10
Dow Inc. DOW Sept. 10
Eastman Chemical Co. EMN Sept. 10
CrowdStrike Holdings, Inc. CRWD Sept. 9
Workhorse Group, Inc. WKHS Sept. 9
International Paper Co. IP Sept. 3
Anaplan, Inc. PLAN Sept. 2
Beyond Meat, Inc. BYND Sept. 1
Elastic N.V. ESTC Sept. 1
Medtronic MDT Aug. 28
Celanese Corp. CE Aug. 26
Norfolk Southern Corp. NSC Aug. 25
Westlake Chemical Corp. WLK Aug. 25
Deere & Co. DE Aug. 24
PulteGroup, Inc. PHM Aug. 24
Expedia Group, Inc. EXPE Aug. 24
Visa, Inc. V Aug. 21
Johnson Controls International JCI Aug. 21
Adobe, Inc. ADBE Aug. 20
Canadian Solar, Inc. CSIQ Aug. 20
General Motors Co. GM Aug. 20
Starbucks Corp. SBUX Aug. 18
Builders FirstSource, Inc. BLDR Aug. 18
Steel Dynamics, Inc. STLD Aug. 17
Elanco Animal Health, Inc. ELAN Aug. 17
Brinker International, Inc. EAT Aug. 13
Enphase Energy, Inc. ENPH Aug. 13
Nike, Inc. NKE Aug. 11
Nucor Corp. NUE Aug. 11
Financial Select Sector SPDR XLF Aug. 10
Freeport McMoRan, Inc. FCX Aug. 10
Natera, Inc. NTRA Aug. 10
Lennar Corp. LEN Aug. 7
McDonald’s Corp. MCD Aug. 7
Mastercard, Inc. MA Aug. 6
United Health Group, Inc. UNH Aug. 6
Kansas City Southern KSU Aug. 6
Industrial Select Sector SPDR XLI Aug. 6
Verizon Communications, Inc. VZ Aug. 5
Sunrun, Inc. RUN Aug. 5
Coeur Mining, Inc. CDE Aug. 5
Southern Copper Corp. SCCO Aug. 3
Penn National Gaming, Inc. PENN July 30
Procter & Gamble Co. PG July 29
SPDR S&P Metals & Mining ETF XME July 28
iShares MSCI South Korea ETF EWY July 28
Toll Brothers, Inc. TOL July 27
HP, Inc. HPQ July 24
Advanced Micro Devices, Inc. AMD July 23
Best Buy Co., Inc. BBY July 22
iShares Europe ETF IEV July 21
Materials Select Sector SPDR XLB July 20
Caterpillar, Inc. CAT July 20
iShares U.S. Home Construction ETF ITB July 17
Progressive Corp. PGR July 17
Livongo Health, Inc. LVGO July 17
Roku, Inc. ROKU July 16
Catalent, Inc. CTLT July 16
Cognizant Technology Solutions, Inc. CTSH July 16
Health Care Select Sector SPDR XLV July 16
Consumer Staples Select Sector SPDR XLP July 15
Home Depot, Inc. HD July 15
Costco Wholesale Corp. COST July 15
Kirkland Lake Gold, Ltd. KL July 15
Air Products & Chemicals, Inc. APD July 14
Consumer Discretionary Select Sector SPDR XLY July 13
Sony Corp. SNE July 13
SunPower Corp. SPWR July 13
Walmart, Inc. WMT July 8
Big Lots, Inc. BIG July 1
Tandem Diabetes Care, Inc. TNDM July 1
Dell Technologies, Inc. DELL June 30
Danaher Corp. DHR June 24
RH RH June 24
Lowe’s Companies LOW June 19
Fiverr International, Ltd. FVRR June 19
Etsy, Inc. ETSY June 17
HubSpot, Inc. HUBS June 8
Square, Inc. SQ June 8
United Parcel Service, Inc. UPS June 5
FedEx Corp. FDX June 3
SPDR S&P Retail ETF XRT June 3
iShares MSCI Japan ETF EWJ May 29
SolarEdge Technologies, Inc. SEDG May 29
Synopsis, Inc. SNPS May 27
iShares Silver Trust SLV May 15
Agnico Eagle Mines, Ltd. AEM May 15
Agilent Technologies, Inc. A May 15
Qualcomm, Inc. QCOM May 12
Kinross Gold Corp. KGC May 11
Salesforce.com, Inc. CRM May 8
Facebook, Inc. FB May 7
Spotify Technology S.A. SPOT May 5
Dollar General Corp. DG Apr. 28
ServiceNow, Inc. NOW Apr. 27
Five9, Inc. FIVN Apr. 24
Chewy, Inc. CHWY Apr. 24
Tesla, Inc. TSLA Apr. 23
VanEck Vectors Semiconductor ETF SMH Apr. 17
Veeva Systems, Inc. VEEV Apr. 17
Okta, Inc. OKTA Apr. 16
Target Corp. TGT Apr. 16
VanEck Vectors Gold Miners ETF GDX Apr. 14
Invesco QQQ Trust QQQ Apr. 14
DocuSign, Inc. DOCU Apr. 3
Zscaler, Inc. ZS Apr. 3
Apple, Inc. AAPL Mar. 27
Nvidia Corp. NVDA Mar. 27
Zoom Video Communications, Inc. ZM Mar. 19
iShares MSCI Emerging Markets ETF EEM Mar. 19
Newmont Corp. NEM Jan. 13
SPDR Gold Shares ETF GLD Jan. 2
Microsoft Corp. MSFT Feb. 22
* Click each symbol for current chart.
US : U.S.: NYSE Arca
$ 28.62
+0.31 +1.10%
Volume: 57.47M
Dec. 2, 2020 8:00p
US : U.S.: Nasdaq
$ 303.85
+0.39 +0.13%
Volume: 23.62M
Dec. 2, 2020 4:00p
US : U.S.: Cboe BZX
$ 221.73
+0.88 +0.40%
Volume: 172,503
Dec. 2, 2020 8:00p
US : U.S.: NYSE Arca
$ 87.93
+0.12 +0.14%
Volume: 13.22M
Dec. 2, 2020 8:00p
US : U.S.: NYSE Arca
$ 70.85
-0.92 -1.28%
Volume: 5.39M
Dec. 2, 2020 8:00p

Michael Ashbaugh is a columnist for MarketWatch and editor of "The Technical Indicator" newsletter.

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