The Technical Indicator: Charting a technical breakdown, S&P 500 violates major support

Against this backdrop, the S&P 500 has violated significant support — the 2,855-to-2,873 area — inflicting incremental longer-term damage. The quality of the pending rally attempt will likely add color.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +0.92% hourly chart highlights the past two weeks.

As illustrated, the S&P has plunged to nine-month lows.

From current levels, the breakdown point (2,855) pivots to notable resistance. Conversely, the S&P has initially maintained its next notable support (2,742), an area detailed previously.

Meanwhile, the Dow Jones Industrial Average DJIA, +0.67% has reached 14-month lows, its worst levels since January 2019.

Tactically, the June low pivots to resistance (24,680) and is followed by the bottom of the gap (24,992).

Against this backdrop, the Nasdaq Composite COMP, +1.26% has reached five-month lows.

The prevailing downturn originates from major resistance. Recall that last week’s high (9,070) registered slightly under its breakdown point (9,088) an area better illustrated below.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has plunged from its breakdown point (9,088).

In the process, the index has ventured firmly under its 200-day moving average, currently 8,420, for the first time since June.

More immediately, consider that the bottom of the gap (8,243) matches resistance at the September peak (8,243). A retest is underway early Tuesday, and may add color.

Looking elsewhere, the Dow Jones Industrial Average has recently whipsawed under its 200-day moving average.

Consider that the index plunged 2,014 points Monday, or 7.8%, its biggest point drop on record. To reiterate, the downdraft places the Dow at 14-month lows, its worst levels since January 2019.

Meanwhile, the S&P 500 has plunged to nine-month lows, its worst levels since early June.

Against this backdrop, the S&P has initially maintained its next notable support (2,742) — an area closely matching the March closing low (2,743) and June closing low (2,744) — detailed previously.

The bigger picture

As detailed above, the major U.S. benchmarks have broken down technically. Consider the scale of each benchmark’s plunge from its recent record close to Monday’s close:

• The Dow industrials have plunged 5,700 points, or 19.3%, from the record close (29,551), established Feb. 12.
• The Nasdaq Composite has plunged 1,867 points, or 19.0%, from its record close (9,817), established Feb. 19.
• The S&P 500 has plunged 640 points, or 18.9%, from its record close (3,386), established Feb. 19.

Against this backdrop, major technical damage has been inflicted, on the order of the worst in several years, if not since the financial crisis.

Though near-term oversold, and due a corrective bounce, the prevailing backdrop supports a bearish intermediate- to longer-term bias, pending repairs.

Moving to the small-caps, the iShares Russell 2000 ETF remains incrementally weaker than the major U.S. benchmarks.

As illustrated, the small-cap benchmark has plunged to 14-month lows, pressured amid a sustained volume spike. Also note that the recent rally attempt registered as flat, fueled by decreased volume. Bearish price action.

Similarly, the SPDR S&P MidCap 400 ETF has asserted a firmly-bearish backdrop.

Here again, the MDY has plunged to 14-month lows, punctuating a lackluster whipsaw at its former range bottom.

Looking elsewhere, the SPDR Trust S&P 500 re-violated its 200-day moving average to conclude last week amid increased volume.

The downturn has been punctuated by Monday’s strong-volume plunge to nine-month lows. Tactically, the breakdown point (285.54) pivots to first resistance.

Placing a finer point on the S&P 500, the index has violated major support to start this week. The chart above spans three years, and each bar represents one week.

The specific area rests at 2,873 and 2,954, levels broadly defining about an 18-month range top.

Also recall that the February low (2,855.8) matched the October low (2,855.9).

Combined, major resistance broadly spans from 2,856 to 2,873. The week-to-date peak (2,864) has matched resistance. An eventual close atop this area would mark a step toward stabilization.

Market breadth remains distinctly (and unusually) bearish

Beyond technical levels, the recently firmly-bearish market internals — detailed previously — accelerated to Monday’s off-the-charts reading.

Consider that NYSE declining volume surpassed advancing volume by a massive 31-to-1 margin amid the major benchmarks’ worst single-day downdraft since 2008.

This marked the fifth internally aggressive downdraft across the prior 11 sessions.

In a textbook world, two 9-to-1 down days, across about a seven session window, would reliably signal a major trend shift. So the prevailing downturn has registered as unusually bearish internally.

Returning to technical levels, familiar S&P 500 inflection points stand out:

• The 200-day moving average, currently 3,051.
• The S&P’s 10% correction mark of 3,047.
• The late-2019 breakout point of 3,028.

Against this backdrop, last week’s close (2,972) registered firmly under major support, and the S&P has extended its downdraft this week.

From current levels, major support (2,742) closely matches the March closing low (2,743) and June closing low (2,744), detailed previously.

An eventual close under this area would punctuate a 13-month low, the S&P’s worst since February 2019.

With these areas detailed, Monday’s close (2,746) registered just above support, punctuating a successful initial retest.

Conversely, major resistance broadly spans from 2,856 to 2,873, an area also detailed on the three-year chart. The pending retest from underneath should be a useful bull-bear gauge.

Beyond specific levels, the prevailing market downdraft has inflicted major technical damage. Establishing a durable market low will more likely be a process than an event based on the current backdrop.

See also: Charting a fragile market recovery attempt, S&P 500 reclaims 200-day average.

See also: Charting a bearish technical tilt, S&P 500 plunges to caution zone.

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, +7.97% has fallen off a cliff, a move contributing to the broad-market downdraft. The fund tracks the price of West Texas Intermediate (WTI) light, sweet crude oil.

As illustrated, the shares have plunged to record lows, pressured after Saudi Arabia cut its crude export prices amid a price war with Russia.

Monday’s downdraft marked the biggest single-day plunge in oil prices since 1991, during the Gulf War.

Though deeply oversold, and due a corrective bounce, the USO has asserted a firmly-bearish longer-term bias. Tactically, a close atop gap resistance — at 7.30 and 8.60 — would mark an early step toward stabilization.

Meanwhile, the 10-year Treasury note yield TNX, +26.25% — profiled last week — has also fallen off a cliff.

In the process, the yield has extended a persistent plunge to record lows, dropping more than 100 basis points across about two weeks.

As detailed previously. a durable broad-market low will not likely be established until yields stabilize. Based on today’s backdrop, an eventual close atop gap resistance (0.79) would mark an early step toward stabilization.

(Also see the Jan. 17 review, the Jan. 28 review and the Feb. 25 review.)

Currency cross currents accelerate amid market carnage

Looking elsewhere, pronounced currency cross currents remain in play, fueled at least partly by plunging Treasury yields.

To start, the U.S. Dollar Index DXY, +1.49% has plunged to 52-week lows.

Technically, the dollar violated its 50- and 200-day moving averages to start March, and has since extended under trendline support.

The dollar’s recent price action is consistent with the conventional yield/dollar relationship. As yields fall, the dollar becomes comparably less attractive versus its peers, sending the dollar lower.

Still, the charts above are unusual to the extent that the U.S. dollar would conventionally be rising amid a safe-haven trade — or at least holding steady — amid the current broad-market carnage.

Against the current backdrop, Treasury yields are converging with other sovereign yields — dropping faster than their peers — partly reconciling the prevailing price action.

More broadly, the dollar has pulled in to major support — illustrated on the three-year chart — an area matching the 200-week moving average. This area would be expected to at least temporarily halt the dollar’s slide.

Meanwhile, the Japanese yen has taken flight, rising partly amid a safe-haven trade.

In the process, the Invesco CurrencyShares Japanese Yen ETF FXY, -1.87% has staged a massive trendline breakout, knifing to three-year highs from recent 52-week lows.

Here again, the March price action signals an unusually stressed market backdrop.

Finally, the SPDR Gold Shares ETF GLD, -1.38% is acting well technically amid a persistent safe-haven trade.

As illustrated, the shares have maintained the breakout point and the 50-day moving average, currently 149.08. (The late-February low registered seven cents above the 50-day.)

The prevailing rally from support preserves a comfortably bullish intermediate- to longer-term bias. Recall that the December and February rallies both marked massive two standard deviation breakouts.

Collectively, the charts above exemplify that the broad-market downdraft has accelerated amid pronounced cross currents across asset classes. Plunging yields and commodity prices have contributed to recent currency volatility.

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.