By Michael Ashbaugh, MarketWatch
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Technically speaking, the U.S. benchmarks’ bullish bigger-picture backdrop has thus far weathered a mid-June market whipsaw.
Against this backdrop, the S&P 500 has initially maintained major support (2,954) rising respectably this week from the key intermediate-term inflection point.
Before detailing the U.S. markets’ wider view, the S&P 500’s /zigman2/quotes/210599714/realtime SPX +0.24% hourly chart highlights the past two weeks.
As illustrated, the S&P is digesting last week’s plunge from a bearish island reversal, a pattern defined by the recent gaps.
Consider that Monday’s low (2,965) registered slightly above major support (2,954) punctuating a successful initial retest. The index subsequently rallied sharply, closing 101 points, or 3.4%, off the session low. Constructive price action.
From current levels, notable overhead spans from 3,123 to 3,131, levels matching the June gap.
Similarly, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% is digesting its recent downturn from an island reversal.
In its case, the pattern is effectively defined by the 200-day moving average, currently 26,316, an area also detailed on the daily chart.
Here again, Monday’s close (25,763) roughly matched familiar resistance (25,758). The Dow has followed through higher early Tuesday.
Meanwhile, the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.92% remains the strongest major benchmark.
Still, the index pulled in respectably from last week’s record high atop the 10,000 mark.
The downturn places the Nasdaq under its former breakout point (9,838) an area better illustrated below. A retest from underneath is underway early Tuesday.
Widening the view to six months adds perspective.
On this wider view, the Nasdaq has violated its breakout point (9,838) notching three straight closes lower.
Delving deeper, the 20-day moving average, currently 9,582, has thus far underpinned the mid-June downturn. The index has not closed under its 20-day — a widely-tracked near-term trending indicator — since April 3.
To reiterate, more distant support matches the bottom of the February gap (9,323), a level defining the February bearish island reversal. Eventual follow-through under this area would mark a material “lower low” raising a caution flag.
Looking elsewhere, the Dow Jones Industrial Average formed a bearish island reversal almost precisely at its 200-day moving average, as detailed last week.
The index has subsequently whipsawed at resistance matching the May peak (25,758) and the February gap (25,752).
Tactically, an overdue consolidation phase is underway, though the Dow’s recovery attempt is intact.
On further weakness, major support matches the June 2019 low (26,480) and the February 2020 low (26,481). The 50-day moving average, currently 26,533, is rising at a clip that should match support in two or three sessions. Eventual follow-through lower would raise an intermediate-term caution flag.
Meanwhile, the S&P 500 has balked at major resistance in the 3,215-to-3,230 area.
Recall that the June peak (3,233.1) registered narrowly atop the 2019 close (3,230.8), briefly placing the S&P in positive year-to-date territory.
Conversely, the S&P has initially maintained major support (2,954), punctuating a jagged, but initially successful, test of the 200-day moving average.
The bigger picture
Collectively, the U.S. benchmarks’ bullish bigger-picture backdrop has thus far weathered a mid-June market whipsaw.
Recall that last week’s downdraft surfaced after the Nasdaq Composite reached record territory — atop the 10,000 mark — and following the S&P 500’s brief venture just two points into positive year-to-date territory.
Though directionally sharp — and fueled by aggressive 9-to-1 negative breadth — Thursday’s initial single-day plunge has thus far failed to follow-through lower.
Also recall that three of the prior seven sessions have marked unusually strong 8-to-1 up days or better. (In this context, an “up day” means that advancing volume surpassed declining volume by the stated margin.)
Combined, market bulls may contend that Thursday’s highly-aggressive downdraft marked a bigger version of the customary one-day market whipsaw following Federal Reserve policy statements. In this case, the statement was released Wednesday afternoon, immediately preceding Thursday’s plunge. Time will tell, pending follow-through, or lack thereof.
Moving to the small-caps, the iShares Russell 2000 ETF has violated its 200-day moving average, currently 147.20.
The downturn punctuates another island reversal.
From current levels, trendline support tracks the 50-day moving average (130.75), and is rising toward the breakout point (136.20). The prevailing recovery attempt is intact barring a violation.