The Technical Indicator: Charting a bull-flag breakout, S&P 500 extends to record territory

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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 have extended a sharp rally from well-defined support, rising as the recent market volatility spike continues to fade.

Against this backdrop, the S&P 500 and Nasdaq Composite have reached record highs — previously uncharted territory — while the Dow industrials’ latest breakout attempt is currently underway.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +0.50%  hourly chart highlights the past two weeks.

As illustrated, the S&P has edged to its latest record high.

The prevailing upturn punctuates a bull flag — the tight four-session range — hinged to the steep early-February rally. Tactically, the former range top (3,337) remains an inflection point.

Meanwhile, the Dow Jones Industrial Average DJIA, +0.19%  has not broken out. Still, the index is holding its range top amid a comfortably bullish backdrop.

Consider that Monday’s session low (29,995) closely matched gap support at the 29,000 mark.

On a more granular note, recall that the Dow’s record close (29,379) has registered just above the January peak (29,373). This area is closely followed by the absolute record peak (29,408).

True to recent form, the Nasdaq Composite’s COMP, +0.69%  backdrop remains the strongest.

The index has sustained a recent break atop the January peak (9,451), outpacing the other benchmarks. This week’s follow-through to record territory confirms the prevailing uptrend.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has extended its February break to record territory. The prevailing upturn originates from its former breakout point (9,093). The late-January low (9,088) registered within five points.

More immediately, the Nasdaq’s early-month breakout point (9,450) pivots to support.

Separately, recall that the marquee 10,000 mark is increasingly within view. Monday’s close (9,628) registered about 3.9% under the milestone.

Looking elsewhere, the Dow industrials continue to lag slightly behind against a comfortably bullish backdrop.

To reiterate, the Dow’s record close (29,379) has narrowly surpassed the January peak (29,373). The index is vying for its latest record close this week.

Slightly more broadly, the February rally originates from support matching the November peak (28,175). The prevailing upturn is directionally sharp, encompassing a decisive rally atop the former breakdown point (28,872). Bullish price action.

Meanwhile, the S&P 500 has extended its bullish reversal, rising to tag its latest record high.

The prevailing upturn originates from major support (3,215) and has been punctuated by a flag pattern, also illustrated on the hourly chart. Bullish price action.

The bigger picture

Collectively, the major U.S. benchmarks are off to a strong February start.

On a headline basis, the S&P 500 and Nasdaq Composite have extended their uptrends, tagging record highs. Meanwhile, the Dow Jones Industrial Average continues to lag slightly behind, though its latest breakout attempt is underway.

All trends technically point higher for each of the big three U.S. benchmarks.

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

Still, the index has managed to maintain a posture atop its 50-day moving average, currently 164.84. As always, the 50-day is a widely-tracked intermediate-term trending indicator.

Conversely, the former breakdown point (167.12) has effectively capped the recent rally attempt.

Similarly, the SPDR S&P MidCap 400 ETF has staged a comparably lackluster February rally, struggling to reclaim its breakdown point (377.60).

But here again, the MDY has reclaimed its 50-day moving average, currently 374.42, punctuating a fleeting late-January whipsaw under the trending indicator.

Combined, the small- and mid-caps are not challenging record highs, unlike the big three U.S. benchmarks.

Looking elsewhere, the SPDR Trust S&P 500 has reclaimed trendline resistance, rising to tag its latest record close.

The prevailing upturn punctuates a successful test of the 50-day moving average, nearly to the decimal (Within three cents.)

Placing a finer point on the S&P 500, the index has rallied to its latest record high, punctuating a sharp early-February rally.

Tactically, inflection points match the 20-day moving average, currently 3,303 (illustrated below), and the S&P’s former range bottom (3,280).

The top of last week’s gap (3,280) matched support. A sustained posture atop this area signals a bullish near-term bias.

Delving deeper, the 50-day moving average, currently 3,239, is followed by the familiar 3,215 support, a bull-bear inflection point detailed repeatedly.

The late-January low (3,215) matched major support, and has been punctuated by a sharp reversal to record territory. The S&P’s intermediate-term bias remains bullish barring a violation of the 3,215 area.

On further strength, a near- to intermediate-term S&P 500 target projects from the January low to about 3,445, an area detailed last week.

Also see: Charting a bullish reversal, S&P 500 extends spike from major support.

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 weathered the recent market downdraft. (Yield = 1.9%.)

Against this backdrop, the sharp February rally places the group’s record close (84.41) under siege. A near-term target projects to the 88 area on follow-through.

Conversely, the 50-day moving average is rising toward the breakout point (82.50) an area roughly matching last week’s gap (82.80). A breakout attempt is in play barring a violation.

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

Conversely, the Energy Select Sector SPDR XLE, +1.11%  has broken down technically, pressured at least partly amid concerns over a virus-fueled global economic slowdown.

As illustrated, the group has recently plunged to four-year lows, violating well-defined support amid a sustained volume increase.

The subsequent rally attempt has been capped by the breakdown point (55.90). The group’s technical bias remains firmly bearish pending a close atop this area. Separately, notice the downward sloping 50- and 200-day moving averages, consistent with bearish longer-term trends.

More broadly, the group remains vulnerable on four-year chart, traversing less-charted territory amid poorly-defined support.

Profiled Jan. 22, Dow 30 component International Business Machines Corp. IBM, -0.74%  has added 7.3% and remains well positioned.

The shares initially spiked three weeks ago, gapping to the range top after the company’s quarterly results. The subsequent late-January gap higher registered after the company appointed a new CEO.

More immediately, the prevailing pullback has been flat, fueled by decreased volume, placing the shares 2.6% under the February peak. A sustained posture atop the breakout point, circa 145, supports a bullish bias.

Separately, notice the pending golden cross — or bullish 50-day/200-day moving average crossover — an event that will likely signal Tuesday or Wednesday. (As this is written, the 50-day moving average, currently 138.27, rests just one penny under the 200-day moving average, currently 138.28.)

Lumentum Holdings, Inc. LITE, +3.30%  is a large-cap manufacturer of optical networking components and an Apple, Inc. supplier.

Earlier this month, the shares knifed to all-time highs, rising after the company’s quarterly results.

The subsequent flag-like pattern has formed amid decreased volume, signaling muted selling pressure at record territory. Tactically, the 50-day moving average has defined the recent trend, and is rising toward the breakout point (83.50). The prevailing uptrend is intact barring a violation.

Initially profiled Jan. 7 — amid the break atop trendline resistance — Atlassian Corp. TEAM, -0.72%  has returned 18.1% and remains well positioned.

Late last month, the shares gapped to record territory, rising amid a volume spike after the company’s quarterly results.

The subsequent tight range positions the shares to build on the steep January rally. Tactically, the prevailing range bottom (145.00) is followed by the top of the gap (140.65). A posture higher supports a bullish bias.

Finally, Shake Shack, Inc. SHAK, -1.50%  is a mid-cap name showing signs of life.

The shares initially spiked four weeks ago, clearing trendline resistance after the company reported strong same-store sales, fueled partly by a recent GrubHub partnership.

More immediately, the shares are challenging the 200-day moving average, currently 74.45, a level roughly matching the 100-day moving average. A breakout opens the path to a less-charted patch and potentially swift near-term follow-through.

Tactically, a near-term floor matches the former range top, circa 71.50, 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.