The Technical Indicator: Charting the approach of record highs, S&P 500 rises amid market rotation

Against this backdrop, S&P 500 has registered a seven-session winning streak — rising within view of record territory — while the Nasdaq Composite pulls in, digesting a decisive early-month break to all-time highs.

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 extended its August breakout, notching seven straight daily gains.

In the process, the index has reached its projected target (3,360) from the late-July range, detailed previously.

The prevailing upturn punctuates a successful test of major support (3,328). Friday’s session low (3,328.7) matched the inflection point.

Meanwhile, the Dow Jones Industrial Average US:DJIA has extended a break atop major resistance.

The specific levels match the March and July peaks, an area that pivots to support.

Recall that the strong August start punctuates a jagged late-July test of the 50- and 200-day moving averages.

Against this backdrop, the Nasdaq Composite US:COMP has pulled in from record highs amid market rotation.

Still, the prevailing downturn has been orderly, and punctuates an unusually strong August start.

Recall that the breakout point (10,840) marks major support. Monday’s session low (10,849) registered slightly higher amid a successful retest.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq is digesting a decisive break to record territory.

Recall the index started August with four straight closes atop the 20-day Bollinger bands to punctuate an unusually strong two standard deviation breakout. The first four August closes also marked a record closes.

Though a consolidation phase is underway, the nearly 2.5% August breakout confirms the Nasdaq’s prevailing uptrend.

Tactically, notable support matches the breakout point (10,840) and the top of the gap (10,831). This area has initially underpinned the prevailing pullback.

(On a granular note, the Nasdaq is vying Tuesday to avoid its first three-session losing streak since March. Still, the prevailing pullback has been orderly, thus far inflicting limited damage.)

Looking elsewhere, the Dow Jones Industrial Average has reached five-month highs.

Notably, the prevailing upturn has encompassed three straight closes atop the 20-day volatility bands to punctuate another powerful August breakout.

Though near-term extended — and due a cooling-off period — the Dow’s steep rally likely lays the groundwork for longer-term gains.

More broadly, the Nasdaq started August a decisive breakout — notching four straight closes atop the Bollinger bands — then the torch was passed to the Dow industrials amid a breakout encompassing three straight closes atop the bands.

The rotational August price action is distinctly bullish. Tactically, the June peak (27,580) pivots to support.

Meanwhile, the S&P 500 is also acting well technically.

In fact, the index has rallied within striking distance of its record close (3,386.15) and absolute record peak (3,393.52). The pending retest from underneath will likely add color.

(The S&P’s August breakout has encompassed a single close atop the 20-day Bollinger bands, also signaling unusual strength, but underperforming the other two major benchmarks.)

The bigger picture

As detailed above, the major U.S. benchmarks are off to a deceptively bullish August start.

On a headline basis, the Nasdaq Composite is digesting a decisive two standard deviation breakout, initially punctuated by four straight record closes.

Meanwhile, the Dow Jones Industrial Average has more recently broken out, knifing to five-month highs amid statistically unusual strength.

Against this backdrop, the S&P 500 has rallied within striking distance of record highs amid a persistent seven-session winning streak.

So collectively, the major U.S. benchmarks have started August — a seasonally unfavorable month — on a firmly-bullish note.

Moving to the small-caps, the iShares Russell 2000 ETF has extended a break to five-month highs.

The prevailing upturn punctuates a bullish continuation pattern — the tight late-July range — underpinned by the 200-day moving average.

Meanwhile, the SPDR S&P MidCap 400 ETF is pressing five-month highs.

Recall that notable overhead matches the June peak (355.23).

Monday’s close (355.16) registered nearby, and a breakout attempt remains underway.

More broadly, the small- and mid-caps are rising amid a pending golden cross — or bullish 50-day/200-day moving average crossover — events likely to signal mid-week.

Looking elsewhere, the SPDR Trust S&P 500 has extended a break to five-month highs. Its record close (338.34) and absolute record peak (339.08) are increasingly within view.

Placing a finer point on the S&P 500, the index has started August with a grinding-higher breakout, notching seven straight daily gains.

The upturn has been punctuated by Monday’s close (3,360.5) matching the S&P’s projected target (3,360) from the July range, detailed previously.

Tactically, notable support matches the February gap (3,328). Friday’s session low (3,328.7) marked a successful retest.

Delving deeper, the breakout point (3,280) marks a firmer floor.

Slightly more broadly, the 20-day moving average, currently 3,275, is rising toward the breakout point (3,280). The 20-day is a widely-tracked near-term trending indicator, and underpinned the July price action.

Conversely, the S&P’s record close (3,386.15) and absolute record peak (3,393.52) — both established Feb. 19 — are increasingly within striking distance.

Beyond specific levels, the S&P 500 has confirmed its uptrend with a bullish 2.4% August breakout. Its intermediate-term path of least resistance continues to point higher pending signs of a bearish pulse.

Also see: Charting a solid August start: S&P 500, Nasdaq stage latest summer breakouts.

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 Industrial Select Sector SPDR has come to life. (Yield = 1.9%.)

As illustrated, the shares have extended a break atop the 200-day moving average, reaching five-month highs. The upturn has been fueled by increased volume and punctuates a tight three-week range.

Tactically, trendline support closely tracks the 50-day moving average, and is rising toward the 200-day moving average. A sustained posture atop the trendline signals a bullish bias.

Meanwhile, the iShares Transportation Average US:IYT — profiled last week — has taken flight.

Specifically, the group has knifed to five-month highs, clearing resistance matching the June peak.

Moreover, the nearly straightline spike marks a two standard deviation breakout, encompassing consecutive closes atop the 20-day Bollinger bands.

Though near-term extended, and due to consolidate, the strong August start confirms the group’s uptrend. Tactically, the breakout point (179.90) pivots to notable support.

More broadly, the tandem transports and industrials resurgence is consistent with improved economic growth expectations, and exemplifies the recent rotation toward cyclicals (value) and away from technology.

Drilling down within the transports, the U.S. Global Jets ETF US:JETS is showing signs of life.

As illustrated, the group has edged atop the 50-day moving average, tagging a fractional six-week high.

The strong-volume upturn comes from a tight July range — a coiled spring — laying the groundwork for potentially decisive follow-through.

Tactically, the former range top (17.30) is followed by the 50-day moving average, currently 16.98. A breakout attempt is in play barring a violation.

Initially profiled July 20, Dow 30 component Caterpillar, Inc. US:CAT has edged slightly higher and remains well positioned. (Yield = 2.9%.)

Technically, the shares have rallied to the range top, tagging a six-month high on increased volume. The upturn punctuates a bullish ascending triangle. A near-term target projects to just under the 150 mark on follow-through.

Conversely, trendline support closely matches the 50- and 200-day moving averages. The breakout attempt is intact barring a violation of this area.

Similarly, Nike, Inc. US:NKE is a well positioned Dow 30 component.

As illustrated, the shares have rallied to the range top, tagging all-time highs amid a volume spike.

The upturn punctuates a cup-and-handle pattern defined by the March and June lows. An intermediate-term target projects to the 115 area.

More broadly, the shares are well positioned on the three-year chart, rising from a continuation pattern (the tight July range) hinged to the early-2020 V-shaped reversal.

Finally, Nucor Corp. US:NUE is a large-cap steel producer coming to life. (Yield = 3.5%.)

Technically, the shares have edged atop the 200-day moving average, rising to challenge five-month highs.

As always, the 200-day is a widely-tracked longer-term trending indicator. The upturn raises the flag to a potential primary trend shift.

Follow-through atop the June peak (46.63) would mark a “higher high” more firmly signaling a trend shift. Tactically, a breakout attempt is in play barring a violation of the former range top (43.90).

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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.