Charting a market whipsaw: Nasdaq, Dow industrials hold key support

This article was originally published on this site

U.S. stocks are firmly higher early Thursday, rising after a solid batch of economic data to punctuate the worst single-day downdraft in about three months.

Against this backdrop, the Nasdaq Composite has maintained its breakout point (13,220) while the Dow Jones Industrial Average has rallied from a surprisingly swift test of its 50-day moving average.

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

As illustrated, the S&P has reversed sharply from Tuesday’s record high, pulling in to the former range.

Thursday’s early upturn punctuates a shaky, but apparently successful, test of the range bottom (3,750).

Delving deeper, recall that the 50-day moving average, currently 3,714, is rising toward major support in the 3,723-to-3,726 area.

Meanwhile, the Dow Jones Industrial Average US:DJIA  remains the weakest of the big three U.S. benchmarks.

Consider that the mid-week downturn placed major support in play.

The specific area broadly spans from 30,283 to 30,322, levels matching the December gap and the 50-day moving average. Both areas are better illustrated on the daily chart.

Against this backdrop, the Nasdaq Composite US:COMP remains the strongest major benchmark.

Still, the index has extended a downturn from record highs, pulling in to fill last week’s gap.

The downturn has been punctuated by a successful test of the breakout point (13,220), an area also illustrated below.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has reversed respectably from record highs.

Still, the downturn has been underpinned by the breakout point (13,220), the Nasdaq’s first notable support, detailed previously. Constructive price action.

Delving slightly deeper, the 20-day moving average, currently 13,164, is rising toward the breakout point. The 20-day has underpinned the prevailing uptrend, hinged to the double bottom, defined by the September and October lows.

Looking elsewhere, the Dow Jones Industrial Average has extended its pullback from last week’s nominal record high.

Here again, the downturn has been underpinned by notable support.

The specific area spans from 30,283 to 30,322, levels matching the December gap and the 50-day moving average.

So here again, the Dow has effectively maintained its former breakout point.

On further weakness, likely last-ditch support matches the mid-November range top (29,964). An eventual violation would mark a material “lower low” — combined with a violation of the 50-day moving average — raising a caution flag.

Meanwhile, the S&P 500 has reversed sharply from its early-week record high.

The downturn places it under the 20-day moving average, currently 3,790, to punctuate the first close under the near-term trending indicator since Nov. 3. (The Dow has notched its first closing violation of its 20-day moving average since Nov. 4. The Nasdaq has maintained a posture atop its 20-day.)

The bigger picture

As detailed above, the major U.S. benchmarks have just weathered — for the most part — the most aggressive market downdraft in about three months.

Against this backdrop, the Nasdaq Composite has successfully tested its breakout point (13,220) while the Dow Jones Industrial Average has maintained its 50-day moving average.

Meanwhile, the S&P 500 has weathered a shaky test of its near-term range bottom. (See the hourly charts.)

Combined, each benchmark’s intermediate-term bias remains bullish, pending more aggressive follow-through.

Moving to the small-caps, the iShares Russell 2000 ETF US:IWM  has reversed modestly from record highs amid increased volume.

The prevailing flag-like pattern, of sorts, is intact based on today’s backdrop.

Meanwhile, the SPDR S&P MidCap 400 ETF US:MDY  has pulled in slightly more aggressively.

Tactically, near-term resistance matches the former range bottom (434.40) and the bottom of the gap (437.51).

Thursday’s early session high (437.52) has matched the latter.

Looking elsewhere, the SPDR Trust S&P 500 US:SPY  has pulled in to its former range amid a volume spike.

This marks its first violation of the 20-day moving average since early November.

Delving deeper, major support spans from 370.70 to 371.00, levels matching the former range top and the 50-day moving average.

Downturn fueled by slightly positive market breadth?

Moving to market breadth, Wednesday’s downdraft stood out as internally unusual.

Specifically, the session registered breadth statistics near parity, and actually skewing fractionally bullish.

Advancing volume slightly surpassed declining volume on the NYSE and Nasdaq, even as the Dow industrials dropped 600+ points.

The strange internal stats are a quirk of the prevailing short-covering drama, driving unusual single-day spikes in individual names, frequently amid massive volume. Though not technically bullish, the internals signaled an absence of material bearish momentum.

More broadly, the mid-week downdraft marks the S&P’s first closing violation of the 20-day moving average, currently 3,790, since Nov. 3.

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

Still, one day rarely alters the broader trend, and downside follow-through has been absent early Thursday. (On a granular note, Wednesday’s session close (3,750.8) effectively matched the former range bottom (3,749.6) thus far averting even a minor “lower low.”)

Delving deeper — and as detailed repeatedly — the ascending 50-day moving average, currently 3,714, is rising toward more important support in the 3,723-to-3,726 area. A potentially last-ditch inflection point matches the post-breakout low (3,662), also the January low.

Though potential downside follow-through remains a “watch out” — over the next several sessions — the S&P 500’s intermediate-term bias remains bullish barring a violation of the areas detailed above. s

Thursday’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.

Charting the traditional sector leaders — technical damage thus far contained

Drilling down further, the market downturn has fueled sector cross currents, amid thus far limited true technical damage. Quickly consider the traditional sector leaders — the technology sector, financials and transports.

To start, the PowerShares QQQ Trust US:QQQ  tracks the Nasdaq 100 Index offering a large-cap technology sector proxy.

Technically, the shares have pulled in from all-time highs — amid increased volume — maintaining trendline support closely matching the breakout point (315.30).

Thursday’s early upturn punctuates a successful test of first support. Constructive price action.

Meanwhile, the Financial Select Sector SPDR US:XLF  has extended its pullback from record highs. (Yield = 2.2%.)

The downturn places notable support in play.

The specific area — detailed Tuesday — matches the 50-day moving average, currently 29.17, and the former range top, circa 29.00.

Wednesday’s close (29.00) matched support. The prevailing upturn preserves a bullish intermediate-term bias. Tactically, the response to this area, across the next several sessions, will likely add color.

Elsewhere, the iShares Transportation Average ETF US:IYT  has registered a slightly more damaging downturn.

As illustrated, the group has violated its breakout point (226.50) and the 50-day moving average, currently 222.60.

Delving deeper, important support spans from about 212.80 to 214.50. An eventual violation would mark a material “lower low” raising an intermediate-term caution flag.

Pending such a move, the group’s bullish intermediate-term bias gets the benefit of the doubt. The prevailing downturn has been fueled by lukewarm volume.

Price action across asset classes signals no flight-to-safety

Beyond U.S. sectors, this week’s price action across asset classes is largely consistent with a garden-variety market pullback.

To start, the 10-year Treasury note yield XX:TNX  continues to digest a likely consequential technical breakout.

Earlier this month, the yield gapped atop the marquee 1.00% mark — (designated by the 10.0 mark on the chart above) — ultimately reaching its best levels since March.

The breakout confirmed the yield’s late-2020 uptrend, detailed previously. The January spike punctuated an orderly December range, as well as a bullish triangle hinged to the late-November low.

More immediately, the yield’s downturn has been underpinned by the top of the gap (1.00). The week-to-date low (1.001) has precisely matched the gap and the marquee 1.00% mark.

Technical price action is bullish against the prevailing market backdrop. (Note that the yield’s successful test dovetails with the XLF’s retest of corresponding support amid equally technical price action.)

Meanwhile, the SPDR Gold Shares US:GLD  has turned lower signaling an absence of safe-haven trade.

The prevailing downturn punctuates a failed test of trendline resistance, placing the shares slightly under the 200-day moving average.

More broadly, the downturn punctuates a bearish island reversal defined by the early-January gaps.

Combined, the recent gold/yield price action is inconsistent with market stress. These are not the earmarks of a seminal market turning point.

Charting a stray note — a potential fly in the soup

Finally, the SPDR S&P Retail ETF US:XRT  has truly taken flight, rising sharply even amid Wednesday’s market downdraft.

In the process, the group has spiked 19.8% across just two sessions.

The chart above is a by-product of the prevailing short-covering drama.

Fundamentally, the XRT is designed to track an equal-weighted index of just under 100 components.

But GameStop’s persistent spike has expanded its influence to a nearly 20% sector weighting. Put differently, GameStop currently accounts for about one fifth of the group’s price action.

Market bears will contend the XRT’s backdrop signals rampant speculation, consistent with a pending market top.

Conversely, market bulls might point to the traditional sector leaders detailed previously. The prevailing sector backdrop supports a bullish intermediate-term bias to the extent the technology sector, financials and transports remain reasonably resilient.

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
Rio Tinto Group RIO Jan. 26
Prudential Financial, Inc. PRU Jan. 26
Sorrento Therapeutics, Inc. SRNE Jan. 26
Netflix, Inc. NFLX Jan. 25
Akamai Technologies, Inc. AKAM Jan. 25
Cummins, Inc. CMI Jan. 25
Invesco Solar ETF TAN Jan. 22
Magna International, Inc. MGA Jan. 22
M.D.C. Holdings, Inc. MDC Jan. 22
Electronic Arts, Inc. EA Jan. 21
Bed Bath & Beyond, Inc. BBBY Jan. 21
Reliance Steel & Aluminum Co. RS Jan. 19
Alaska Air Group, Inc. ALK Jan. 15
Chevron Corp. CVX Jan. 15
Zebra Technologies Corp. ZBRA Jan. 14
Juniper Networks, Inc. JNPR Jan. 14
Chegg, Inc. CHGG Jan. 11
Macy’s, Inc. M Jan. 11
Nexstar Media Group, Inc. NXST Jan. 11
iShares Transportation Average ETF IYT Jan. 11
Energy Select Sector SPDR XLE Jan. 8
Teledoc Health, Inc. TDOC Jan. 8
Skyworks Solutions, Inc. SWKS Jan. 7
Financial Select Sector SPDR XLF Jan. 7
FireEye, Inc. FEYE Jan. 5
Check Point Software Technologies CHKP Jan. 4
Synaptics, Inc. SYNA Jan. 4
Sunrun, Inc. RUN Dec. 23
ShockWave Medical, Inc. SWAV Dec. 23
JPMorgan Chase & Co. JPM Dec. 22
Ballard Power Systems, Inc. BLDP Dec. 21
LivePerson, Inc. LPSN Dec. 21
United Therapeutics Corp. UTHR Dec. 21
Shopify, Inc. SHOP Dec. 18
CyberArk Software Ltd. CYBR Dec. 18
Calix, Inc. CALX Dec. 17
Elastic N.V. ESTC Dec. 17
Cerner Corp. CERN Dec. 17
Tenet Healthcare Corp. THC Dec. 16
Williams-Sonoma, Inc. WSM Dec. 15
iShares Nasdaq Biotechnology ETF IBB Dec. 15
SDPR S&P Regional Banking ETF KRE Dec. 14
Etsy, Inc. ETSY Dec. 14
Plug Power, Inc. PLUG Dec. 9
F5 Networks, Inc. FFIV Dec. 8
Emerson Electric Co. EMR Dec. 8
Zscaler, Inc. ZS Dec. 7
Fortinet, Inc. FTNT Dec. 7
Kulicke and Soffa Industries, Inc. KLIC Dec. 7
Dillard’s, Inc. DDS Dec. 4
Spotify Technology S.A. SPOT Dec. 3
Valero Energy Corp. VLO Dec. 3
Analog Devices, Inc. ADI Dec. 2
Cirrus Logic, Inc. CRUS Dec. 1
Sonos, Inc. SONO Dec. 1
American Airlines Group, Inc. AAL Nov. 30
Zillow Group, Inc. ZG Nov. 23
Bank of America Corp. BAC Nov. 20
SPDR S&P Oil & Gas Exploration and Production ETF XOP Nov. 20
MetLife, Inc. MET Nov. 19
Kohl’s Corp. KSS Nov. 18
Applied Materials, Inc. AMAT Nov. 17
Consumer Staples Select Sector SPDR XLP Nov. 17
RingCentral, Inc. RNG Nov. 13
Regions Financial Corp. RF Nov. 13
iShares Europe ETF IEV Nov. 13
Snap, Inc. SNAP Nov. 9
Norfolk Southern Corp. NSC Nov. 9
Communications Services Select Sector SPDR XLC Nov. 5
Health Care Select Sector SPDR XLV Nov. 5
Alphabet, Inc. GOOGL Nov. 5
Keysight Technologies, Inc. KEYS Nov. 4
Harley-Davidson, Inc. HOG Nov. 4
Sony Corp. SNE Nov. 3
8×8, Inc. EGHT Nov. 3
Exact Sciences Corp. EXAS Nov. 2
Universal Display Corp. OLED Nov. 2
Dentsply Sirona, Inc. XRAY Oct. 27
Maxim Integrated Products, Inc. MXIM Oct. 21
The Travelers Companies, Inc. TRV Oct. 21
Micron Technology, Inc. MU Oct. 20
Vulcan Materials Co. VMC Oct. 19
ON Semiconductor Corp. ON Oct. 16
Ford Motor Co. F Oct. 15
First Solar, Inc. FSLR Oct. 13
Nevro Corp. NVRO Oct. 12
Teradyne, Inc. TER Oct. 12
SPDR S&P Homebuilders ETF XHB Oct. 9
Shake Shack, Inc. SHAK Oct. 9
SPDR S&P Biotech ETF XBI Oct. 8
Twilio, Inc. TWLO Oct. 8
Cloudflare, Inc. NET Oct. 7
RSailPoint Technology Holdings, Inc. SAIL Oct. 1
Martin Marietta Materials, Inc. MLM Sept. 30
Abercrombie & Fitch Co. ANF Sept. 29
Zendesk, Inc. ZEN Sept. 23
Scientific Games Corp. SGMS Sept. 23
Crocs, Inc. CROX Sept. 14
Five Below, Inc. FIVE Sept. 10
Eastman Chemical Co. EMN Sept. 10
International Paper Co. IP Sept. 3
Deere & Co. DE Aug. 24
Johnson Controls International JCI Aug. 21
Canadian Solar, Inc. CSIQ Aug. 20
General Motors Co. GM Aug. 20
Builders FirstSource, Inc. BLDR Aug. 18
Enphase Energy, Inc. ENPH Aug. 13
Freeport McMoRan, Inc. FCX Aug. 10
Industrial Select Sector SPDR XLI Aug. 6
Penn National Gaming, Inc. PENN July 30
SPDR S&P Metals & Mining ETF XME July 28
iShares MSCI South Korea ETF EWY July 28
Advanced Micro Devices, Inc. AMD July 23
Materials Select Sector SPDR XLB July 20
Caterpillar, Inc. CAT July 20
Roku, Inc. ROKU July 16
Consumer Discretionary Select Sector SPDR XLY July 13
SunPower Corp. SPWR July 13
Walmart, Inc. WMT July 8
Danaher Corp. DHR June 24
Fiverr International, Ltd. FVRR June 19
Square, Inc. SQ June 8
SPDR S&P Retail ETF XRT June 3
iShares MSCI Japan ETF EWJ May 29
Synopsis, Inc. SNPS May 27
Agilent Technologies, Inc. A May 15
Qualcomm, Inc. QCOM May 12
Five9, Inc. FIVN Apr. 24
Chewy, Inc. CHWY Apr. 24
Tesla, Inc. TSLA Apr. 23
VanEck Vectors Semiconductor ETF SMH Apr. 17
Okta, Inc. OKTA Apr. 16
Target Corp. TGT Apr. 16
Invesco QQQ Trust QQQ Apr. 14
Apple, Inc. AAPL Mar. 27
iShares MSCI Emerging Markets ETF EEM Mar. 19
Microsoft Corp. MSFT Feb. 22
* Click each symbol for current chart.