The Technical Indicator: Charting a break to ‘clear skies’ territory, S&P 500 tags all-time highs

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’ already-bullish backdrop continues to strengthen with the best six months seasonally set to start Friday.

On a headline basis, the S&P 500 has broken to record highs — and is traversing previously uncharted territory — while the Nasdaq Composite’s October peak has thus far missed an all-time high by just four points.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +0.17%  hourly chart highlights the past two weeks.

As illustrated, the S&P has broken out, reaching all-time highs.

Tactically, the top of the gap (3,032) is closely followed by major support matching the breakout point (3,028) a level defined by the July peak. (The S&P’s former record high.)

Meanwhile, the Dow Jones Industrial Average DJIA, +0.12%  has not broken out — at least not yet.

Still, the blue-chip benchmark has knifed from its range bottom, rising to challenge major resistance.

Consider that Monday’s close (27,090) closely matched the July gap (27,088), an area also detailed on the daily chart.

Against this backdrop, the Nasdaq Composite COMP, -0.29%  has extended a late-month breakout.

In the process, the index is pressing record territory matching the July peak (8,339.6), an area better illustrated below. Monday’s session high (8,335.6) missed the record high by just four points.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq is challenging all-time highs. A retest of the record close (8,330.21) and absolute record peak (8,339.64) is currently underway.

As always, the response to resistance is worth tracking. The chances of follow-through improve to the extent the index holds tightly to the range top.

More broadly, the prevailing upturn resolves a bullish double bottom — the W formation, defined by the August and October lows — a pattern hinged to the steep June-through-July rally. The October rally originates from a successful test of the 200-day moving average.

Looking elsewhere, the Dow Jones Industrial Average is pressing its range top.

As detailed repeatedly, overhead inflection points match the July gap — at 27,088 and 27,135. Monday’s close (27,090) matched resistance, and the Dow has ventured slightly higher early Tuesday.

On further strength, the September peak (27,306.73) is followed by the Dow’s record close (27,359.16) and absolute record peak (27,398.68), areas that remain slightly more distant.

Meanwhile, the S&P 500 remains the strongest major U.S. benchmark.

As illustrated, the index has reached record territory, clearing resistance matching the July and September peaks. The breakout point (3,028) pivots to notable support.

The bigger picture

Collectively, the U.S. benchmarks’ bigger-picture backdrop remains bullish, and it continues to strengthen.

The S&P 500 has reached record territory, while the Nasdaq Composite has thus far missed an all-time high by just four points.

Meanwhile, the Dow Jones Industrial Average is lagging slightly behind, though with just 30 components, it’s the least representative widely-tracked U.S. benchmark. (And even the Dow’s intermediate-term bias remains comfortably bullish.)

Moving to the small-caps, the iShares Russell 2000 ETF remains the weakest widely-tracked U.S. benchmark.

Still, the IWM has extended its break atop the 200-day moving average. Next resistance matches the 158 area, and the pending retest may add color.

Meanwhile, the SPDR S&P MidCap 400 has cleared next resistance, circa 355, following last week’s extended retest. Bullish price action.

On further strength, the September peak (360.98) is followed by the year-to-date closing peak (362.01).

Looking elsewhere, the SPDR Trust S&P 500 has cleared major resistance.

Tactically, the breakout point pivots to support — the 302.00-to-302.60 area — levels matching the SPY’s former record highs.

More broadly, the breakout resolves a double bottom, defined by the August and October lows. The bullish pattern is bisected by the 50-day moving average, and hinged to the steep June-through-July rally.

Placing a finer point on the S&P 500, its backdrop remains bullish, and is increasingly straightforward.

To start, the index has reached uncharted territory, capped by no real overhead. It’s path of least resistance genuinely points higher. Recall that an intermediate-term target projects to the 3,140 area, about 3.3% above current levels.

Conversely, the breakout point pivots to notable support (3,028) a level matching the July peak and the bottom of this week’s gap.

Delving deeper, the 2,960 area marks more important support. This level matches the 50-day moving average, currently 2,962, as well as the September gap (2,960) and the mid-October gap (2,963). The S&P’s intermediate-term bias remains bullish barring a violation.

Beyond technical levels, the U.S. sub-sector backdrop has strengthened amid a tandem transports and financials resurgence, detailed in the next section. Also consider that the best six months seasonally are set to start Friday, Nov. 1, an added broad-market tailwind.

Also see: Bull ‘trend’ intact, S&P 500 inches toward record territory.

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 Financial Select Sector SPDR XLF, +0.30%  has broken out.

The October upturn punctuates a successful test of the 200-day moving average, placing the group at 52-week highs.

Tactically, the breakout point (28.70) is followed by the former range top (28.10) and the prevailing rally attempt is intact barring a violation. (Tuesday’s early session low (28.70) has matched first support.)

More broadly, the group is well positioned on the three-year chart, rising from a massive modified head-and-shoulders bottom.

Similarly, the iShares Transportation Average ETF is showing signs of life.

As illustrated, the group has extended its rally atop the 50- and 200-day moving averages, rising to challenge the range top.

The response to this area — across the next several sessions — should be a useful bull-bear gauge. The chances of follow-through improve to the extent the group holds tightly to the range top.

More broadly, the financials and transports are traditional sector leaders. The tandem late-October resurgence strengthens the broad-market bull case.

Looking elsewhere, the iShares China Large-Cap ETF FXI, -0.80%  has reached a major technical test. (Yield = 2.1%,)

Earlier this month, the shares gapped atop trendline resistance, resolving a modified head-and-shoulders bottom defined by the May, August and September lows. The trendline has subsequently offered support.

More immediately, major resistance matches the September peak (41.97) and the 200-day moving average, also currently 41.97. A close atop this area would mark a “higher high” confirming the October trend shift.

Against this backdrop, the week-to-date peak (41.98) — also the October peak — has matched resistance. The retest remains underway.

Tactically, the 50-day moving average (40.43) is rising toward trendline support. A breakout attempt is in play barring a violation.

Initially profiled Feb. 22, Dow 30 component Microsoft Corp. MSFT, -0.43%  has returned 29.9% and remains well positioned. (Yield = 1.5%.)

Technically, the shares have gapped to all-time highs, rising after the company won a U.S. government cloud-services contract worth up to $10 billion over 10 years.

The breakout punctuates an orderly, and relatively tight, four-month range, opening the path to potentially material follow-through. (The longer the base, the higher the space.) A near-term target projects to the 147 area.

Conversely, the top of the gap (143.50) is followed by the breakout point (141.60) and the prevailing rally attempt is firmly intact barring a violation.

TJX Companies, Inc. TJX, -0.47%  is a well positioned large-cap retailer. (Yield = 1.6%.)

Earlier this month, the shares knifed to record territory, clearing major resistance matching the 2018 peak.

The subsequent pullback has been comparably flat, placing the shares at an attractive entry near the top of the gap (57.84) and 4.4% under the October peak. Delving deeper, the 50-day moving average is rising toward the breakout point (56.90) and a posture higher supports a bullish bias.

Finally, Splunk, Inc. SPLK, +0.17%  is a large-cap software and cloud-services name showing signs of life.

As illustrated, the shares have reclaimed the 50-day moving average, rising to challenge trendline resistance.

The upturn punctuates a third successful test of the range bottom, laying the groundwork for a potential breakout. Tactically, gap support (117.00) offers an area from which to work, and a breakout attempt is in play 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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