The Technical Indicator: Bull trend strengthens: S&P 500 sustains breakout amid market rotation

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Technically speaking, the U.S. benchmarks’ already-bullish bigger-picture backdrop continues to strengthen.

On a headline basis, each big three benchmark has staged a decisive November breakout — confirming its uptrend — and has since flatlined, signaling still muted selling pressure amid healthy market rotation.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +0.33%  hourly chart highlights the past two weeks.

As illustrated, the S&P continues to hold its range top. The selling pressure near record highs remains flat.

Tactically, a near-term inflection point (3,085) is followed by gap support (3,067), a level closely matching last week’s low (3,066).

Similarly, the Dow Jones Industrial Average DJIA, +0.17%  is digesting its November breakout.

To reiterate, near-term support (27,560) is followed by a firmer floor at the 27,400 mark, a level also detailed on the daily chart.

Recall that the top of the gap (27,402) closely matches the July peak (27,398).

Against this backdrop, the Nasdaq Composite COMP, +0.45%  has also drawn muted selling pressure near record highs.

Tactically, the former range top (8,457) is followed by gap support (8,386) roughly matching last week’s low.

Collectively, each big three U.S. benchmark has registered a shallow pullback from its all-time high signaling that bullish momentum is intact.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq is digesting a decisive November breakout. The prevailing flag pattern at record territory is technically constructive.

As detailed previously, gap support (8,386) is followed by the firmer breakout point — the 8,335-to-8,339 area — levels matching the October and July peaks.

Conversely, an intermediate-term target projects from the October low to the 8,700 mark.

Looking elsewhere, the Dow Jones Industrial Average has registered an increasingly respectable November breakout. (This remains the “weakest” breakout of the major U.S. benchmarks.)

The prevailing upturn originates from major support (27,400).

Last week’s low (27,408) registered slightly above the breakout point (27,400), an area also detailed on the hourly chart. Bullish price action.

Meanwhile, the S&P 500 has paced the U.S. benchmarks’ rally to record highs. This was the first major benchmark to break out, initially reaching record territory on Oct. 28.

The steep rally has been punctuated by shallow and short-lived pullbacks, signaling that late-year selling pressure remains muted.

Put differently, the break to record highs opened the path to uncharted territory — capped by no true resistance — and the S&P has responded accordingly.

The bigger picture

Collectively, an already-bullish bigger-picture backdrop has strengthened materially to start November.

On a headline basis, each major benchmark has knifed to record territory. Moreover, the decisive breakouts have surfaced amid rotational price action — across sectors and asset classes — detailed last week.

Moving to the small-caps, the iShares Russell 2000 ETF continues to lag behind.

Not only has the IWM not reached record territory, it remains capped by its year-to-date peak (161.11).

Still, the IWM has asserted a November flag-like pattern, underpinned by first support (158.00). As always, the flag is a continuation pattern, improving the chances of eventual upside follow-through.

Meanwhile, the SPDR S&P MidCap 400 has sustained a break to 52-week highs.

In its case, the prevailing flag pattern is underpinned by gap support, detailed previously. Last week’s low (361.51) registered fractionally above the bottom of the gap (361.43).

More broadly, the November gap has marked a familiar floor across the widely-tracked benchmarks. (See the hourly charts.)

Looking elsewhere, the SPDR Trust S&P 500 is digesting a break to record highs.

Recall that the November spike resolves a double bottom defined by the August and October lows. Major support matches the breakout point, the 302.00-to-302.60 area.

Placing a finer point on the S&P 500, the index is off to a bullish November start.

From current levels, gap support rests at 3,067 and 3,050. Last week’s low (3,066) matched support and has been punctuated by upside follow-through. Bullish price action.

Delving deeper, a more significant floor spans from 3,022 to 3,028, levels matching the September peak and the breakout point. The S&P 500’s intermediate-term bias remains firmly bullish barring a violation of this area.

Conversely, an intermediate-term target projects to the 3,140 area, detailed repeatedly, and is increasingly within view.

More broadly, potentially consequential market rotation surfaced last week, price action strengthening the broad-market bull case.

See also: Bull trend confirmed: S&P 500, Nasdaq knife to uncharted 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 United States Oil Fund USO, +0.04%  has reached a headline technical test. The fund tracks the price of West Texas Intermediate (WTI) light, sweet crude oil.

Specifically, an extended test of the 200-day moving average, currently 11.94, remains underway. As always, the 200-day is a widely-tracked longer-term trending indicator. A posture higher generally signals a primary uptrend.

Against this backdrop, the tight November range is a coiled spring, laying the groundwork for potentially decisive follow-through. Tactically, a breakout attempt is in play barring a violation of the prevailing range bottom (11.73) a level matching the May gap (11.72).

On further strength, near-term resistance (12.20) is followed by an inflection point matching the July peak (12.63).

Moving to U.S. sectors, the iShares Transportation Average ETF IYT, -0.36%  is digesting a November breakout.

Earlier this month, the group tagged 52-week highs, rising from a well-defined six-month range. The November upturn originates from the major moving averages, opening the path to an intermediate-term target of 215, about 8.6% above current levels.

Tactically, the breakout point (195) pivots to major support. The prevailing rally attempt is firmly intact barring a violation.

More broadly, consider that the transports and crude oil prices have recently moved in tandem. (See, for instance, the August lows and September peaks.) The pair is conventionally inversely correlated, as rising oil prices present the transports with an increased expense. If the 2019 relationship persists, crude oil may be poised for a late-year rally, a move consistent with strengthening global-growth expectations.

Moving to specific names, Broadcom, Inc. AVGO, +1.06%  is a well positioned large-cap semiconductor name. (Yield = 3.4%.)

The shares started November with a breakout, knifing to six-month highs from bullish ascending triangle pinned to the May low.

By comparison, the ensuing pullback has been flat, fueled by decreased volume, positioning the shares to build on the early-month spike. The prevailing flag pattern is underpinned by the breakout point (304.90) and Broadcom’s rally attempt is firmly intact barring a violation.

Initially profiled Aug. 16, Cirrus Logic, Inc. CRUS, +2.19%  has returned 29.7% and remains well positioned.

Late last month, the shares gapped sharply higher, briefly tagging record highs after the company’s second-quarter results.

The subsequent flag pattern signals still muted selling pressure, likely positioning the shares to extend the breakout. Tactically, a near-term floor matches the post-breakout low (67.60) and a posture higher supports a bullish bias.

AstraZenaca, plc AZN, +0.62%  is a well positioned British large-cap pharmaceutical name. (Yield = 3.0%.)

The shares initially spiked three weeks ago, gapping to all-time highs after the company’s quarterly results.

The subsequent pullback places the shares at attractive entry near the breakout point (46.20) — a level matching the top of the gap — and 5.0% under the November peak. Delving deeper, trendline support is rising toward the breakout point and the prevailing uptrend is intact barring a violation.

Boingo Wireless, Inc. WIFI, -1.58%  is a small-cap provider of wireless communications services coming to life.

Technically, the shares have recently knifed atop trendline resistance, rising after the company’s quarterly results.

Underlying the upturn, its relative strength index (not illustrated) has registered its best levels since September 2018, improving the chances of a durable trend shift.

Tactically, the 50-day moving average closely matches the former breakdown point (10.90) and the recovery attempt is intact barring a violation. (Note that the 50-day moving average’s slope has flattened, also consistent with a trend shift.)

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.