Michael Ashbaugh

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Jan. 12, 2021, 12:54 p.m. EST

Charting a decisive 2021 breakout: U.S. benchmarks clear 20-day volatility bands

Focus: Rising interest rates and energy prices signal reflation trade, 10-year yield and crude oil take flight, TNX, USO, AMD, SEDG, CSCO

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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 asserted a near-term holding pattern, pulling in modestly from all-time highs.

Still, the slight downturn punctuates previously aggressive January breakouts amid a still comfortably bullish bigger-picture backdrop.

Before detailing the U.S. markets’ wider view, the S&P 500’s /zigman2/quotes/210599714/realtime SPX +1.46%  hourly chart highlights the past two weeks.

As illustrated, the S&P is digesting its latest break to all-time highs. The flattish initial pullback signals still muted selling pressure near record territory.

Tactically, initial support (3,783) is followed by an inflection point, circa 3,764.

Meanwhile, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.09%  has also sustained its January breakout, notching three straight closes atop the 31,000 mark.

The prevailing bull flag — the tight four-session range, near record highs — is a bullish continuation pattern.

Slightly more broadly, the breakout punctuates a successful test of major support (29,964) on the year’s first session.

Against this backdrop, the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.67% has registered three straight closes atop the 13,000 mark.

To reiterate, the breakout point (12,973) marks a notable floor, and is followed by the Nasdaq’s former projected target (12,920).

Delving deeper, the prevailing upturn punctuates a successful first-day-of-the year test of major support (12,607).

Widening the view to six months adds perspective.

On this wider view, the Nasdaq is digesting its January break to record territory. Recall that the initial spike marked a 1.8% breakout, confirming the Nasdaq’s primary uptrend.

Tactically, the breakout point (12,973) pivots to support.

Delving deeper, the prevailing upturn originates from the 20-day moving average — a widely-tracked near-term trending indicator — and the former breakout point (12,607).

Looking elsewhere, the Dow Jones Industrial Average has sustained a more decisive break to record highs.

Consider that Monday’s modest downturn snapped a stretch of three straight closes atop the 20-day Bollinger bands to conclude a statistically unusual two standard deviation breakout.

As always, consecutive closes atop the Bollinger bands signal a tension between time horizons.

For the near-term , the index is extended — and due to consolidate — following a break outside the range encompassing two standard deviations of its trailing 20-day price volatility.

But more importantly, the decisive upside spike signals extreme bullish momentum, a backdrop likely to precede longer-term upside follow-through.

Meanwhile, the S&P 500 has also taken flight.

Its January breakout has encompassed two straight closes atop the 20-day volatility bands amid an unusually strong January breakout.

The bigger picture

Collectively, the major U.S. benchmarks are off to a bullish 2021 start.

On a headline basis, each big three U.S. benchmark has knifed to all-time highs — previously uncharted territory — rising from a successful early-January test of the 20-day moving average.

As always, the 20-day moving average is a widely-tracked near-term trending indicator.

Moreover, the subsequent rally from the 20-day moving average has been fueled by statistically unusual bullish momentum. Each big three benchmark has staged a two standard deviation breakout.

(On a granular note, the Dow Jones Industrial Average notched three straight closes atop the 20-day volatility bands, the S&P 500 registered two straight closes atop the 20-day bands, and the Nasdaq Composite managed a less reliable, but still bullish, lone close atop the bands.)

Moving to the small-caps, the iShares Russell 2000 ETF /zigman2/quotes/209961116/composite IWM +2.43%  is digesting an unusually strong January spike.

Recall that its nearly 3.5% breakout confirms the primary uptrend.

More immediately, the prevailing pullback has been flat, fueled by decreased volume, likely laying the groundwork for longer-term follow-through.

+58.83 +1.46%
Volume: 0.00
Jan. 31, 2023 5:00p
US : Dow Jones Global
+368.95 +1.09%
Volume: 0.00
Jan. 31, 2023 5:00p
US : Nasdaq
+190.74 +1.67%
Volume: 5.77B
Jan. 31, 2023 5:16p
US : U.S.: NYSE Arca
$ 191.48
+4.54 +2.43%
Volume: 21.57M
Jan. 31, 2023 4:00p
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