The Technical Indicator: Charting a successful technical test, S&P 500 maintains major support

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 SPX, +2.26% 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 DJIA, +2.44% 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 COMP, +1.98% 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.

Similarly, the SPDR S&P MidCap 400 ETF has violated its 200-day moving average.

Tactically, the 50-day moving average is rising toward the breakout point, circa 309.40. Eventual follow-through lower would raise an intermediate-term caution flag.

Looking elsewhere, the SPDR Trust S&P 500 has weathered a jagged retest of its 200-day moving average, currently 301.16.

More immediately, notable overhead spans from 312.15 to 313.00 levels matching the bottom of the June gaps. A retest from underneath is underway Tuesday and may add color.

Placing a finer point on the S&P 500, an overdue consolidation phase is underway.

But recall that last week’s nearly 6% single-day plunge, amid 9-to-1 negative breadth, registered as unusually aggressive. The “watch out” — across about the next week — is that a comparably aggressive downdraft surfaces, signaling a trend shift.

Tactically, familiar inflection points remain in play:

• The 200-day moving average, currently 3,016.
• Major support at 2,954, a level defining the former range top.

Against this backdrop, the June low (2,965), established Monday, has registered slightly above major support. The S&P rallied respectably intraday, rising 101 points, or 3.4%, to the session close. The sharp rally near major support is constructive.

Slightly more broadly, recall that the S&P’s 50-day moving average, currently 2,926, is rising at a clip that will match major support (2,954) in about two or three sessions. The S&P 500’s intermediate- to longer-term bias remains bullish barring an eventual violation of this area.

Also see: Charting a break to ‘clear skies’ territory, Nasdaq approaches 10,000 mark.

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 continues to act relatively well.

Late last month, the group knifed to three-month highs, reclaiming the 200-day moving average and the former breakdown point.

The ensuing pullback has been underpinned by trendline support closely matching the 200-day moving average (40.90), a move placing the group 8.6% under the June peak.

Tactically, deeper inflection points match the post-breakout low (40.00) and the May gap (39.25). The group’s rally attempt is intact barring a violation.

Fundamentally, a report released Tuesday signaled that May retail sales spiked 17.7% — the largest monthly increase on record — though the report was working from an historically low base.

Initially profiled March 26, Amazon.com, Inc. AMZN, +1.61% has returned 31.6% and remains well positioned.

As illustrated, the shares have recently knifed to all-time highs, clearing resistance matching the April peak.

The subsequent pullback places the shares at attractive entry near the breakout point, circa 2,498, and 5.8% under the June peak. The prevailing uptrend is firmly intact barring a violation of this area.

More broadly, consider that the June peak (2,722) slightly surpassed Amazon’s intermediate-term target (2,695) detailed previously. A healthy consolidation phase is underway.

Skyworks Solutions, Inc. SWKS, +1.42% is a well positioned large-cap semiconductor name and an Apple, Inc. supplier.

Technically, the prevailing pullback from record territory has been underpinned by the breakout point (123.00) placing the shares 8.6% under the June peak. Trendline support is rising toward the breakout point and a posture higher signals a firmly-bullish bias.

More broadly, the shares are well positioned on the 10-year chart, rising from a prolonged multi-year base.

Lululemon Athletica, Inc. LULU, +1.81% is a large-cap maker of yoga gear and related apparel.

The shares initially spiked three weeks ago, staging a decisive late-May break to all-time highs.

Underlying the upturn, its relative strength index (not illustrated) registered nearly two-year highs, improving the chances of longer-term follow-through.

More immediately, the prevailing pullback places the shares 7.2% under the June peak. A near-term floor (281.50) closely matches trendline support and the rally attempt is intact barring a violation.

Initially profiled May 8, Avalara, Inc. AVLR, +2.73% has returned 11.4% and remains well positioned.

As illustrated, the shares have reached record territory, rising from a four-week range, a bullish continuation pattern. An intermediate-term target projects to the 121 area.

Conversely, the breakout point, circa 110.50, is followed by deeper trendline support. A sustained posture higher signals a firmly-bullish bias.

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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.