The Technical Indicator: Bull trend under siege: S&P 500 ventures under near-term support

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 U.S. benchmarks have whipsawed to start May, pressured amid heightened China-U.S. trade tensions and increased market volatility.

Though limited damage has thus far been inflicted — at least on a closing basis — notable support points are under siege Tuesday, placing several near-term technical trends in question.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -1.28%  hourly chart highlights the past two weeks.

As illustrated, the S&P is off to a volatile May start to begin the worst six months seasonally.

The index absorbed last week’s Fed-induced downdraft, and has subsequently whipsawed to start this week amid heightened trade tensions. Tactically, a notable floor matches the mid-April breakout point (2,896) an area that has underpinned recent volatility.

Meanwhile, the Dow industrials’ DJIA, -1.39%  backdrop remains characteristically softer.

The index briefly tagged one-month lows Monday before reversing respectably, rising to the former range.

Recall that notable support matches the top of the April gap (26,310) a level the Dow has effectively maintained on a closing basis. (Last week’s closing low (26,308) closely matched support.)

Against this backdrop, the Nasdaq Composite COMP, -1.43%  remains comparably stronger than the Dow.

Consider that last week’s close (8,164) marked a nominal record, eclipsing its former record by about two points.

More immediately, Monday’s session low (7,981) registered slightly above last week’s Fed-induced low (7,676). The successful retest, and reversal to the range, is technically constructive.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq continues to digest the mid-April break to record territory. Recall that the 20-day moving average, currently 8,045, has effectively underpinned the year-to-date uptrend.

Delving deeper, the Nasdaq’s first significant floor matches the breakout point (7,850). The 50-day moving average — a widely-tracked intermediate-term trending indicator, currently 7,822 — is rising toward support.

Looking elsewhere, the Dow Jones Industrial Average has thus far sustained the April breakout, though narrowly.

To reiterate, major support broadly spans from 26,240 to 26,310, levels matching the February peak and the top of the mid-April gap.

Delving deeper, three inflection points, detailed Monday, stand out:

• The 50-day moving average, currently 26,087.
• The top of the early-April gap at 26,071.
• The April low of 26,062.

Against this backdrop, Tuesday’s early session low (26,012) has registered under support, though as always, it’s the close that matters. A closing violation of the areas detailed would raise a technical question mark.

Meanwhile, the S&P 500 has whipsawed near record highs amid a volatile May start.

Tactically, notable support matches the S&P’s former breakout point (2,896) and is followed by the firmer 2,873 mark.

The bigger picture

Collectively, the U.S. benchmarks absorbed last week’s Fed-induced whipsaw, and are back on the defensive this week amid heightened China-U.S. trade tensions.

Limited technical damage has thus far been inflicted, though notable support is under siege early Tuesday. (See the Dow’s 50-day moving average, currently 26,087, for instance.)

The session close, and the next several sessions, will likely add color.

Moving to the small-caps, the iShares Russell 2000 ETF has come to life amid recent volatility, tagging consecutive six-month closing highs.

The former range top (159.50) remains an inflection point, and the small-cap benchmark has ventured lower early Tuesday. An extended jagged breakout attempt remains in play.

Recall that the prevailing upturn punctuates last week’s successful retest of the 200-day moving average, to the decimal.

Meanwhile, the SPDR S&P MidCap 400 is traversing a tight range near seven-month highs.

Major support broadly spans from 354.36 to 355.10, levels matching the range bottom and the early-April peak. The latest retest is underway Tuesday.

Looking elsewhere, the SPDR Trust S&P 500 SPY, -1.28% has pulled from its fractional record close to conclude last week.

Tactically, initial support broadly spans from about 290.70 to 291.40. Delving deeper, an inflection point spans from 288.66 to 289.00, detailed last week.

Placing a finer point on the S&P 500, its backdrop remains relatively straightforward even amid recent volatility.

The index has twice pulled a rabbit from hat to start May, rising respectably from near-term support (2,896). Whether its backdrop can support a third bullish reversal is the immediate question.

Tactically, a closing violation of the range bottom would raise the flag to a near-term trend shift — a more prolonged, and potentially deeper, consolidation phase.

On further weakness, a firmer floor matches the 2,873 mark, a level matching the post-breakout low and the January 2018 peak. The 50-day moving average, currently 2,857, is rising toward this area.

Delving deeper, major support matches the 2,817 mark. This level defines the breakout point from the S&P’s bullish V-shaped reversal as well as a projected target from the December low.

(Start with the 2,581 support and subtract the December low: 2,581 – 2,346 = 235 points. Then, add back to the former breakdown point: 2,581 + 235 = 2,816.)

As always, it’s not just what the markets do, it’s how they do it. But generally speaking, the 2,817 area defines the S&P’s break from mini-crash territory, and the its intermediate-term bias remains bullish barring a violation.

See also: S&P 500’s grinding-higher bull trend approaches seasonal headwind.

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 Homebuilders ETF — initially profiled Jan. 30 — has returned 14.4% and remains well positioned.

As illustrated, the group has asserted a narrow one-month range, digesting the April break to nine-month highs.

Tactically, trendline support closely matches the prevailing range bottom, and is followed by the deeper 50-day moving average (39.40) a level that has recently defined the trend. The group’s intermediate-term bias remains bullish barring a violation.

Initially profiled Feb. 1, Adobe, Inc. ADBE, -2.04%  has returned 14.5% and remains well positioned.

Late last month, the shares knifed to record territory, gapping higher after an analyst upgrade.

The ensuing pullback has been fueled by decreased volume, placing the shares at an attractive entry near the breakout point, circa 274, and 2.8% under the April peak. Tactically, trendline support closely matches the breakout point and the rally attempt is intact barring a violation.

Hyatt Hotels Corp. H, -0.25%  is a well positioned large-cap name.

The shares started May with a breakout, knifing from a tight one-month range after the company’s better-than-expected quarterly results.

The subsequent pullback has been underpinned by the breakout point, even amid recent market volatility. Tactically, trendline support is rising toward the former range bottom (75.25) and a posture higher supports a bullish bias.

Cypress Semiconductor Corp. CY, -0.70%  is a well positioned large-cap name. (Yield = 2.5%.)

Technically, the shares have recently knifed to eight-month highs, rising amid a volume spike after the company’s first-quarter results.

The ensuing flag pattern positions the shares to build on the initial strong-volume rally. Tactically, near-term support (16.70) is followed by the former breakout point (16.10) and the ascending 50-day moving average, a level that has defined the intermediate-term uptrend.

Finally, Omnicom Group, Inc. OMC, -1.25%  is a large-cap provider of marketing and advertising services.

The shares initially spiked three weeks ago, knifing to 23-month highs after the company’s first-quarter results. The subsequent pullback has been orderly, placing the shares at an attractive entry near the top of the gap (78.50) and 5.1% under the April peak.

Tactically, the top of the gap closely matches the breakout point and the recovery attempt is intact barring a violation.

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.

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.

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