The Technical Indicator: Charting a bullish reversal, S&P 500 extends spike from major support

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Technically speaking, the U.S. benchmarks are off to a strong February start, rising in the wake of an aggressive market downdraft.

Against this backdrop, the S&P 500 has extended a rally from major support — the 3,215 mark, detailed repeatedly — rising to challenge key resistance (3,283), an area defining the immediate bull-bear battleground.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +1.71%  hourly chart highlights the past two weeks.

As illustrated, the S&P has nailed major support (3,215) — detailed previously — and the initial rally attempt is underway.

Last week’s low (3,214.7) matched support punctuating a successful retest.

Tactically, initial resistance (3,258) is followed by the 3,283 inflection point. A close atop the latter would likely neutralize the January market downdraft.

Meanwhile, the Dow Jones Industrial Average DJIA, +1.70%  has pulled in more aggressively, notching consecutive closes under its 50-day moving average, currently 28,465.

On a positive note, the Dow has maintained its next notable floor matching the November peak (28,175), an area better illustrated on the daily chart.

From current levels, notable resistance matches the breakdown point (28,872). A close higher would place the Dow on firmer technical ground.

Against this backdrop, the Nasdaq Composite COMP, +2.04%  remains the strongest major benchmark.

This was the only index to avert a “lower low” to conclude January.

Tactically, familiar resistance (9,298) is followed by the Nasdaq’s record close (9,402) and absolute record peak (9,451). The Nasdaq is vying to register a record close with Tuesday’s strong start.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq’s bearish key reversal — the long red bar at the January peak — has kicked off a jagged consolidation phase.

Still, the downturn has inflicted limited damage in the broad sweep.

Recall that the late-January low (9,088) effectively matched the breakout point (9,093) punctuating a successful retest of the Nasdaq’s first notable support.

Looking elsewhere, the Dow industrials’ backdrop remains weaker.

Recall that the index has failed its initial retest of the breakdown point (28,872) from underneath. (Also see the hourly chart.)

Still, the Dow has maintained deeper support — an area matching the November peak (28,175) — and a rally attempt is underway. A swift reversal back atop the breakdown point (28,872) would likely neutralize the January downdraft.

Meanwhile, the S&P 500 has nailed major support, surviving a headline technical test.

As detailed repeatedly, major support rests at 3,215 an area matching the 50-day moving average, currently 3,217.

Last week’s low (3,214.7) punctuated a successful retest, and the prevailing rally preserves a bullish intermediate-term bias.

The bigger picture

Though the prevailing backdrop is not one-size-fits-all, each big three U.S. benchmark’s intermediate-term bias remains bullish.

More immediately, key near-term tests are once again underway early Tuesday.

Specifically, each index is pressing well-defined resistance — S&P 3,283, Nasdaq 9,298 and Dow 28,872 — areas that capped the major benchmarks last week. A close atop these areas strengthens the near-term bull case.

Moving to the small-caps, the iShares Russell 2000 ETF has registered three straight closes under its 50-day moving average — a widely-tracked intermediate-term trending indicator — raising a technical caution flag.

Tactically, significant resistance spans from about 163.50 to 164.25, levels matching the breakdown point and the 50-day moving average.

A swift reversal atop resistance would place the small-cap benchmark on firmer technical ground.

Similarly, the SPDR S&P MidCap 400 ETF has ventured under key support.

Its corresponding resistance spans from 370.75 to 372.35, levels matching the breakdown point and the 50-day moving average.

Here again, a rally atop this area would strengthen the bull case.

Looking elsewhere, the SPDR Trust S&P 500 has narrowly maintained its 50-day moving average, bottoming last week just three cents atop the trending indicator.

Tactically, initial resistance (324.90) is followed by an inflection point matching the late-January peak (328.63). The pending retests from underneath should be a useful bull-bear gauge.

Placing a finer point on the S&P 500, the index asserted a bearish near-term bias last week.

As detailed previously, near-term inflection points match the former range bottom — the 3,280-to-3,283 area — and the 20-day moving average, currently 3,282.

More immediately, Tuesday’s session low (3,280) has matched the inflection point, and the S&P is vying to assert a posture higher. As always, it’s the session close that matters.

To reiterate, a swift reversal atop the 3,280 area would likely neutralize the January downdraft.

More broadly, the S&P 500 has weathered a key intermediate-term technical test.

Recall that important support rests at 3,215, a level matching the December gap (3,216), the January low (3,214.6) and the S&P’s former projected target (3,215).

Last week’s low (3,214.7) matched support, almost precisely, and the S&P has rallied sharply to start this week. Bullish price action, though rally attempt’s quality remains an open question.

When gauging the rally’s quality, two inflection points stand out. Initial resistance at 3,258 and the 3,280 area, detailed previously.

All told, the S&P 500’s intermediate-term bias remains bullish following a successful test of major support (3,215). More immediately, the S&P 3,280 area marks a key near-term technical test. A sustained break atop this area likely neutralizes the January downdraft.

Also see: Charting near-term technical damage, S&P 500 ventures under key support.

Also see: Bull trend persists, S&P 500 digests powerful rally atop 20-day volatility bands.

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, +1.92%  seems to have weathered the recent market downdraft.

Tactically, a bull-bear inflection point closely matches the December gap (30.30) and the 50-day moving average, currently 30.50. Despite the recent whipsaw at support, downside follow-through has been absent.

Separately, the prevailing downturn punctuates a failed test of major resistance matching record territory — the 31.10 area — detailed previously. (The 2007 peak (30.97) and 2020 peak (31.10) have closely matched.)

The pending retest of this area from underneath should be a useful bull-bear gauge.

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

Meanwhile, the SPDR S&P Homebuilders ETF remains a pocket of relative strength.

The group started 2020 with a decisive breakout, knifing to record territory from a tight three-month base. The upturn marked a two standard deviation breakout, encompassing seven straight closes atop the 20-day Bollinger bands. (Bullish momentum registered as extreme and statistically unusual.)

By comparison, the prevailing downturn has been orderly, placing the group near the breakout point (46.40) and 3.6% under the January peak.

Initially profiled Sept. 18, Dow 30 component Intel Corp. INTC, +1.65%  has returned 24.0% and remains well positioned. (Yield = 2.0%.)

Late last month, the shares knifed to 19-year highs, rising after the company’s fourth-quarter results.

The ensuing pullback has narrowly filled the gap (by just four cents), placing the shares at an attractive entry 7.6% under the January peak. Delving deeper, trendline support closely matches the breakout point (60.80). A sustained posture higher supports a bullish bias.

More broadly, Intel is well positioned on the three-year chart, rising from a massive double bottom defined by the 2018 and 2019 lows.

STMicroelectronics, Inc. STM, +2.88%  is a well positioned large-cap Switzerland-based semiconductor name.

As illustrated, the shares have recently gapped to 17-year highs, rising amid a sustained volume spike after the company’s quarterly results.

The subsequent pullback has been fueled by decreased volume, placing the shares at an attractive entry near the breakout point (28.00) and 7.3% under the January peak.

PTC, Inc. PTC, +2.46%  is a well positioned large-cap software vendor.

Late last month, the shares gapped to six-month highs, rising after the company’s quarterly results.

The subsequent flag-like pattern positions the shares to build on the initial strong-volume spike. Tactically, the range bottom is closely followed by the breakout point (82.00). The prevailing rally attempt is firmly intact barring a violation.

Also notice the recent golden cross — or bullish 50-day/200-day moving average crossover — signaling that the intermediate-term uptrend has overtaken the longer-term trend.

Initially profiled Jan. 23, Himax Technologies, Inc. HIMX, +3.58%  has returned 11.1% and remains well positioned.

The shares started 2020 with a nearly straightline strong-volume rally, rising after the company’s preliminary quarterly results.

By comparison, the ensuing pullback has been flat — underpinned by the designated support (3.58) — and punctuated by a strong-volume rally to 52-week highs. A near-term target projects to the 4.60 area on follow-through.

Note that the company’s quarterly results are due out Feb. 13.

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.