The Technical Indicator: Charting a corrective bounce, S&P 500 attempts rally amid historic volatility spike

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Technically speaking, the major U.S. benchmarks continue whipsaw amid a pronounced, and historic, market volatility spike.

Against this backdrop, the S&P 500 has reversed from 14-month lows early Tuesday, rising in the wake of a severely damaging market downdraft.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +4.29%  hourly chart highlights the past two weeks.

As illustrated, the S&P remains under persistent pressure.

Consider that Monday marked a 325-point, or 12.0%, single-day downdraft, its largest daily plunge since 1987.

Tactically, near-term overhead broadly spans from about 2,478 to 2,532 — detailed previously — the former matching last week’s low (2,478).

Also recall that last week’s close (2,711) closely matched the S&P’s 20% pullback level (2,708.9).

Similarly, the Dow Jones Industrial Average DJIA, +3.22%  is struggling to find a floor.

In its case, the index plunged 2,997 points Monday, or 12.9%, also marking the biggest daily downdraft since 1987.

Here again, a near-term inflection point matches last week’s low (21,154).

Against this backdrop, the Nasdaq Composite COMP, +4.39%  is also trending firmly lower.

Consider that Monday’s 970-point, 12.3% downdraft marked its largest single-day percentage drop on record.

The prevailing downturn originates from last week’s close (7,875) slightly above the 20% pullback level (7,854).

Widening the view to six months, the Nasdaq has fallen off a cliff.

The prevailing leg lower punctuates a failed test of the breakdown point (8,339) from underneath.

Recall that last week’s closing peak (8,344) closely matched major resistance.

Once the Nasdaq stops plunging from well-defined overhead, the flag will be raised to potential stabilization.

From current levels, near-term resistance matches last week’s low (7,194).

On further strength, firmer overhead spans from 7,700 to 7,712, levels matching the October low and the bottom of the gap.

Looking elsewhere, the Dow Jones Industrial Average has registered three-year lows.

Recall three headline inflection points, detailed previously:

• The 20% bear-market pullback level (23,641).
• The Dow’s 200-week moving average, currently 23,630.
• The top of the gap (23,328).

Against this backdrop, last week’s close (23,185) registered under the inflection points. This marked the Dow’s first weekly close under its 200-week moving average since September 2010, as the financial crisis receded. (The Dow’s four-year chart and 10-year chart illustrate the 200-week moving average.)

More broadly, the Dow has plunged more than 9,000 points across just over four weeks. Though due a corrective bounce, the downdraft has inflicted major technical damage. The Dow has asserted a firmly-bearish intermediate- to longer-term bias pending repairs.

Meanwhile, the S&P 500 continues to whipsaw amid a pronounced, and historic, volatility spike.

Technically, recall that Wednesday’s close (2,741) matched major support (2,742). The S&P plunged 9.5% in Thursday’s action.

The index subsequently spiked 9.3% Friday, a move punctuated by Monday’s 12.0% plunge, its biggest downdraft since 1987.

The stretch of 10% daily moves — in alternating directions — is consistent with crash-like market price action.

The bigger picture

Collectively, the early-2020 technical breakdown remains underway.

Consider the scope of each benchmark’s plunge from its recent record close to Monday’s close:

• The Dow industrials have plunged 9,363 points, or 31.7%, from the record close (29,551), established Feb. 12.
• The Nasdaq Composite has plunged 2,913 points, or 29.7%, from its record close (9,817), established Feb. 19.
• The S&P 500 has plunged 1,000 points, or 29.5%, from its record close (3,386), established Feb. 19.

Against this backdrop, major technical damage has been inflicted — on a scale rivaling that of the financial crisis — and each benchmark has asserted a firmly-bearish intermediate- to longer-term bias.

Moving to the small-caps, the iShares Russell 2000 ETF IWM, +2.86%  has registered four-year lows, its worst levels since February 2016.

On a more granular note, consider that Friday’s session high (119.96) matched gap resistance (119.90) detailed previously. The small-cap benchmark subsequently extended its downturn. Bearish price action.

Meanwhile, the SPDR S&P MidCap 400 ETF has also reached four-year lows.

The downturn punctuates a swift plunge from all-time highs. The mid-cap benchmark had registered a record close (384.02) as recently as Feb. 20.

Similarly, the SPDR Trust S&P 500 SPY, +3.94%  has plunged from recent record highs, pressured amid a sustained volume spike.

The breakdown has been punctuated by tandem volume spikes, and a flat, lighter-volume early-March rally attempt. Bearish price action.

Placing a finer point on the S&P 500, the index has registered an aggressive four-week plunge. The chart above spans three years, and each bar represents one week.

Along the way, the S&P initially maintained the 2,954 support across consecutive weekly closes, detailed previously. (See the Feb. 28 weekly close (2,954) and the March 6 weekly close (2,972).)

Last week’s aggressive violation raises a technical red flag.

Separately, recall that last week’s high (2,882) roughly matched the breakdown point (2,873) punctuating a failed retest from underneath. Bearish price action.

Also consider that last week’s close (2,711) closely matched the S&P’s 20% pullback level (2,709).

So the S&P is at least observing well-defined technical areas, though the price action itself remains firmly-bearish.

Delving deeper, the S&P has ventured firmly under its 200-week moving average, currently 2,642, to start this week. The index has not registered a weekly close under the 200-week moving average since September 2011.

This means the S&P is vying to avoid its first weekly close under the 200-week moving average by Friday’s close. (Recall last Friday’s rabbit-from-hat rally — a 9.3% single-day spike — to place the S&P effectively on the 20% pullback mark (2,709).)

Market breadth remains firmly-bearish

Returning to market breadth, the bigger-picture internals remain firmly-bearish.

Consider that Monday’s 12-to-1 NYSE down day followed three 17-to-1 down days (or worse) registered just last week. (A down day means that declining volume surpassed advancing volume by the stated margin.)

Separately, the market downdraft has encompassed eight8-to-1 down days (or worse) across a narrow 16-session window.

More plainly, the prevailing downdraft has been fueled by genuinely aggressive selling pressure, on the order that might surface once a decade, or less frequently.

(As a slight positive, two 9-to-1 up days have registered across the prior four sessions. Wednesday’s 9-to-1 up day and Friday’s 10-to-1 up day.

Though the upturns arguably mark the very early signs of a bullish pulse — or at least potential stabilization — they have registered amid an off-the-charts internally bearish backdrop.)

Returning to technical levels, the S&P observed two areas last week.

To start, recall that last week’s close (2,711) closely matched the S&P’s 20% pullback level (2,709).

Separately, the index initially maintained the 2,742 support — an area matching Wednesday’s close (2,741) — before plunging aggressively lower.

Tactically, an eventual close atop the areas detailed above would mark a step toward stabilization.

More immediately, familiar downside inflection points fall out as follows:

• The S&P’s 200-week moving average, currently 2,642.
• An inflection point broadly spanning from 2,478 to 2,532, levels matching last week’s low, the late-2017 breakout point and February 2018 reaction low.
• The December 2018 low of 2,346.

Against this backdrop, the week-to-date low (2,367), established early Tuesday, has thus far punctuated the prevailing market downdraft. The S&P has reversed firmly off the session low, and the rally attempt’s quality will likely add color.

Beyond specific levels, extensive technical damage has been inflicted. The S&P 500’s backdrop supports a firmly-bearish intermediate- to longer-term bias pending repairs.

Also see: Charting a technical breakdown, S&P 500 violates major support.

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.