By Michael Ashbaugh, MarketWatch
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Technically speaking, the U.S. benchmarks’ already-bullish backdrop has strengthened amid rotational August price action.
Against this backdrop, S&P 500 has registered a seven-session winning streak — rising within view of record territory — while the Nasdaq Composite pulls in, digesting a decisive early-month break to all-time highs.
Before detailing the U.S. markets’ wider view, the S&P 500’s /zigman2/quotes/210599714/realtime SPX -1.16% hourly chart highlights the past two weeks.
As illustrated, the S&P has extended its August breakout, notching seven straight daily gains.
In the process, the index has reached its projected target (3,360) from the late-July range, detailed previously.
The prevailing upturn punctuates a successful test of major support (3,328). Friday's session low (3,328.7) matched the inflection point.
Meanwhile, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.84% has extended a break atop major resistance.
The specific levels match the March and July peaks, an area that pivots to support.
Recall that the strong August start punctuates a jagged late-July test of the 50- and 200-day moving averages.
Against this backdrop, the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.13% has pulled in from record highs amid market rotation.
Still, the prevailing downturn has been orderly, and punctuates an unusually strong August start.
Recall that the breakout point (10,840) marks major support. Monday’s session low (10,849) registered slightly higher amid a successful retest.
Widening the view to six months adds perspective.
On this wider view, the Nasdaq is digesting a decisive break to record territory.
Recall the index started August with four straight closes atop the 20-day Bollinger bands to punctuate an unusually strong two standard deviation breakout. The first four August closes also marked a record closes.
Though a consolidation phase is underway, the nearly 2.5% August breakout confirms the Nasdaq’s prevailing uptrend.
Tactically, notable support matches the breakout point (10,840) and the top of the gap (10,831). This area has initially underpinned the prevailing pullback.
(On a granular note, the Nasdaq is vying Tuesday to avoid its first three-session losing streak since March. Still, the prevailing pullback has been orderly, thus far inflicting limited damage.)
Looking elsewhere, the Dow Jones Industrial Average has reached five-month highs.
Notably, the prevailing upturn has encompassed three straight closes atop the 20-day volatility bands to punctuate another powerful August breakout.
Though near-term extended — and due a cooling-off period — the Dow’s steep rally likely lays the groundwork for longer-term gains.
More broadly, the Nasdaq started August a decisive breakout — notching four straight closes atop the Bollinger bands — then the torch was passed to the Dow industrials amid a breakout encompassing three straight closes atop the bands.
The rotational August price action is distinctly bullish. Tactically, the June peak (27,580) pivots to support.
Meanwhile, the S&P 500 is also acting well technically.
In fact, the index has rallied within striking distance of its record close (3,386.15) and absolute record peak (3,393.52). The pending retest from underneath will likely add color.
(The S&P’s August breakout has encompassed a single close atop the 20-day Bollinger bands, also signaling unusual strength, but underperforming the other two major benchmarks.)
The bigger picture
As detailed above, the major U.S. benchmarks are off to a deceptively bullish August start.
On a headline basis, the Nasdaq Composite is digesting a decisive two standard deviation breakout, initially punctuated by four straight record closes.
Meanwhile, the Dow Jones Industrial Average has more recently broken out, knifing to five-month highs amid statistically unusual strength.
Against this backdrop, the S&P 500 has rallied within striking distance of record highs amid a persistent seven-session winning streak.
So collectively, the major U.S. benchmarks have started August — a seasonally unfavorable month — on a firmly-bullish note.
Moving to the small-caps, the iShares Russell 2000 ETF has extended a break to five-month highs.
The prevailing upturn punctuates a bullish continuation pattern — the tight late-July range — underpinned by the 200-day moving average.
Meanwhile, the SPDR S&P MidCap 400 ETF is pressing five-month highs.