Charting a slow-motion breakout: S&P 500 challenges 3,700 mark

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 continue to trend higher, rising amid rotational price action, and persistent late-year strength.

Against this backdrop, the S&P 500 has rallied to press its latest round-number milestone — the 3,700 mark — while the Nasdaq Composite vies to extend a more aggressive break to all-time highs.

Before detailing the U.S. markets’ wider view, the S&P 500’s (S&P:SPX)  hourly chart highlights the past two weeks.

As illustrated, the S&P has sustained its latest modest break to record territory.

Tactically, the December peak (3,699.20) has thus far registered less than one point under the 3,700 mark.

Conversely, the former range top (3,682) is followed by firmer support matching the November peak (3,646).

Meanwhile, the Dow Jones Industrial Average (DOW:DJIA)  has pulled in modestly from its latest record high.

Still, the index has maintained its former breakout point (29,964) an area also detailed on the daily chart.

Tuesday’s early session low (29,972) has registered slightly above support.

Separately, Monday’s close punctuated the Dow’s first consecutive closes atop the 30,000 mark. (Monday also marked just the third-ever close atop the 30,000 mark.)

Against this backdrop, the Nasdaq Composite (NASDAQ:COMP) continues to tag all-time highs.

The prevailing upturn punctuates last week’s successful test of support matching the November peak (12,244).

Also recall that the Nasdaq has trended atop its 20- hour moving average, the hallmark of a strong near-term uptrend.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has extended a decisive 3.8% technical breakout. Consider that six of the prior eight closes have marked all-time closing highs.

Though near-term extended — and due a cooling-off period — the aggressive breakout confirms the primary uptrend.

Tactically, the November peak (12,244) is followed by the firmer breakout point (12,074).

Looking elsewhere, the Dow Jones Industrial Average broken less decisively to record highs.

The prevailing upturn punctuates a jagged test of the November range top. A near-term target continues to project to the 30,700 mark, about 2.1% above current levels.

Conversely, a near-term floor matches the former breakout point (29,964), an area also detailed on the hourly chart. Tuesday’s early session low (29,972) has registered slightly above support.

Meanwhile, the S&P 500 has sustained a respectable breakout.

To reiterate, the December peak (3,699.20) has thus far registered less than one point from the 3,700 mark.

Conversely, gap support almost precisely matches the breakout point (3,646), detailed previously.

The bigger picture

As detailed above, the major U.S. benchmarks are acting well technically.

On a headline basis, the S&P 500 and Nasdaq Composite have extended their initial Dec. 1 breaks to record territory (last Tuesday), rising amid still muted selling pressure.

Meanwhile, the Dow Jones Industrial Average has broken out less aggressively, rising atop the 30,000 mark amid recent catch-up price action.

Moving to the small-caps, the iShares Russell 2000 ETF has extended its late-year rally to record territory.

The bull-flag breakout punctuates a tight seven-session range.

Similarly, the SPDR S&P MidCap 400 ETF has extended its uptrend.

Here again, the breakout punctuates a seven-session flag pattern hinged to the steep November rally.

Looking elsewhere, the SPDR Trust S&P 500 (PSE:SPY)  has extended an early-month breakout.

The December follow-through punctuates a bullish continuation pattern hinged to a familiar double bottom, defined by the September and October lows.

Placing a finer point on the S&P 500, the index is rising amid orderly price action.

Recall that the top of last week’s gap (3,645.87) almost precisely matched the November peak (3,645.99), detailed previously.

The post-breakout low (3,645, Wednesday) registered within about one point of support.

Delving deeper, the prevailing breakout originates from last week’s low (3,594) matching gap support (3,594).

More broadly, the S&P has sustained its December breakout. Recent grinding-higher price action punctuates a continuation pattern hinged to the double bottom defined by the September and October lows.

Tactically, the breakout point (3,646) is followed by a deeper floor in the 3,588-to-3,594 area, levels matching the September peak and last week’s gap.

Delving deeper, the October peak (3,550) is followed by the ascending 50-day moving average, currently 3,499.

Beyond technical levels, the S&P 500’s intermediate-term path of least resistance continues to point higher, based on today’s backdrop, pending signs of a bearish pulse. Late-year selling pressure remains conspicuously flat.

Also see: Market rotation persists: Nasdaq takes flight to record highs.

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 S&P Retail ETF has taken flight.

Specifically, the group has knifed to record territory, placing distance atop former resistance matching the October peak. The initial upturn marked a bullish two standard deviation breakout, encompassing consecutive closes atop the 20-day Bollinger bands.

Though still near-term extended, and due to consolidate, the steep late-year rally likely lays the groundwork for longer-term follow-through.

More broadly, the prevailing breakout punctuates a prolonged five-year range, illustrated on the one-decade chart. As always, the longer the base, the higher the space.

Initially profiled March 27, Apple, Inc. (NAS:AAPL)  has returned 91.5% and remains well positioned.

The shares started December with a breakout, clearing trendline resistance after a pair of bullish analyst notes.

The strong-volume upturn punctuates a successful test of the 100-day moving average, a level defining the November lows.

On further strength, the October peak (125.40) remains an overhead inflection point. Follow-through higher would resolve a modified double bottom — defined by the September and November lows — likely opening the path to a retest of the record high.

Conversely, the 100-day moving average, currently 114.80, is followed by the late-November low (112.60) and slightly deeper gap support (112.35). A sustained posture higher signals a bullish bias.

F5 Networks, Inc. (NAS:FFIV)  is a well positioned large-cap networking software name.

The shares initially spiked four weeks ago, rising after an activist investor disclosed a less than 5% stake in the company, and management announced a $1 billion share buyback program. (The strong-volume spike coincided with the Nov. 9 vaccine-fueled broad-market rally.)

The ensuing pullback has been underpinned by the breakout point, and punctuated by a nominal 19-month high. A near-term target projects to the 178 area on follow-through.

Initially profiled Oct. 1, SailPoint Technologies Holdings, Inc. (NYS:SAIL)  has edged slightly higher and remains well positioned.

The shares initially spiked about two months ago, rising after the announcement that the company has been added to the S&P MidCap 400 Index.

More immediately, the December upturn places record highs under siege. An intermediate-term target projects to the 57 area on a break from the range top (48.50).

Separately, the shares are well positioned on the three-year chart, rising from a continuation pattern hinged to the steep mid-2020 rally.

Emerson Electric Co. (NYS:EMR)  is a well positioned large-cap diversified industrial name. (Yield = 2.5%.)

As illustrated, the shares have sustained the November breakout, rising to challenge record territory. The December upturn punctuates a successful test of the range bottom (74.50). A near-term projects to the 86 area on follow-through.

More broadly, the shares are well positioned on the four-year chart, challenging major resistance matching the 2018 peak (79.70). The prevailing upturn punctuates a massive V-shaped reversal from the early-2020 low.

Finally, Patterson Companies, Inc. (NAS:PDCO)  is a mid-cap developer of dental and animal health products. (Yield = 3.2%.)

Earlier this month, the shares knifed to two-year highs, rising after the company’s second-quarter results.

The subsequent flag pattern has formed amid decreased volume, positioning the shares to build on the initial spike. Tactically, the post-breakout low (31.47) is followed by the breakout point, a level closely matching the top of the gap (29.25). A posture higher signals a bullish bias.

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.