The Technical Indicator: Charting a pulling-teeth breakout attempt: S&P 500, Nasdaq challenge record territory

Consider that the Nasdaq Composite and S&P 500 have registered nominal record highs this week — tagging previously uncharted territory — though a pulling-teeth breakout attempt remains underway.

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

As illustrated, the S&P continues to press record highs.

Its record close (3,386.15) and absolute record peak (3,393.52) remain under siege. (In fact, Tuesday’s early session high (3,395.06) has marked a nominal intraday record high.)

Conversely, near-term support (3,360) is followed by a firmer floor matching the February gap (3,328).

Meanwhile, the Dow Jones Industrial Average US:DJIA is digesting a break to five-month highs.

The prevailing five-session flag pattern positions the index to build on its initially decisive August breakout. Tactically, a near-term floor, circa 27,800, is followed by firmer support matching the June peak (27,580).

Against this backdrop, the Nasdaq Composite US:COMP has edged to an all-time high.

Consider that Monday’s close (11,129.7) eclipsed its former record peak (11,126.0) by just under four points.

Practically speaking, the breakout attempt remains underway.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has narrowly extended its August breakout.

The prevailing upturn punctuates a flag-like pattern hinged to the steep early August spike. (Recall the index started August with four straight record closes, and four consecutive closes atop the 20-day Bollinger bands, to punctuate a decisive two standard deviation breakout.)

This week’s slight follow-through positions the index to build on the early-month spike.

Tactically, the breakout point (10,840) is followed by deeper gap support (10,748). The August low (10,762) has registered slightly above the latter.

Looking elsewhere, the Dow Jones Industrial Average has sustained a break to five-month highs.

Recall that its initial breakout encompassed three straight closes atop the 20-day volatility bands, a stretch that was snapped last Tuesday.

The prevailing flag pattern — the tight one-week range, hinged to the steep early-August spike — marks the “expected” consolidation. As always, the bull flag is a continuation pattern, improving the chances of upside follow-through.

Tactically, more distant overhead matches the February gap (28,403).

Meanwhile, the S&P 500’s pulling-teeth breakout attempt remains in play.

The prevailing upturn originates from consecutive tests of gap support (3,328), an area better illustrated on the hourly chart.

The bigger picture

As detailed above, the major U.S. benchmarks are acting well technically.

On a headline basis, the Nasdaq Composite and S&P 500 have tagged nominal record highs this week, while the Dow Jones Industrial Average continues to digest a previously decisive August breakout.

Though not one-size-fits-all, the bigger-picture backdrop remains comfortably bullish.

Moving to the small-caps, the iShares Russell 2000 ETF is digesting a decisive rally to five-month highs.

The initial breakout registered as statistically unusual, encompassing two straight closes atop the 20-day Bollinger bands. (Also see comparable April, May and June breakouts.)

Tactically, downside inflection points match last week’s low (155.87) and the June peak (153.39).

Meanwhile, the SPDR S&P MidCap 400 ETF has flatlined at familiar resistance.

An extended test of the June peak (355.23) remains underway. (Recall the MDY also flatlined at the 200-day moving average, on its initial approach, and subsequently followed through in grinding-higher form.)

Looking elsewhere, the SPDR Trust S&P 500 is pressing uncharted territory.

Familiar overhead inflection points match the record close (338.34) and absolute record peak (339.08), both established Feb. 19.

Monday’s session high (338.34) precisely matched the SPY’s record close amid a slow-motion breakout attempt.

Placing a finer point on the S&P 500, the index continues to challenge record highs.

The prevailing upturn punctuates consecutive successful tests of major support (3,328).

Slightly more broadly, recall that last week’s initial approach of record territory induced a downdraft to support. The S&P has subsequently held tightly to the range top, signaling muted selling pressure amid the current retest. Constructive price action.

More immediately, the S&P is back for another crack at its record close (3,386.15) and absolute record peak (3,393.52).

To reiterate, Tuesday’s early session high (3,395.06) has marked a nominal intraday record. The S&P’s recent persistence near the range top improves the chances of more decisive follow-through.

Tactically, S&P 3,328 marks familiar support, an area that underpinned last week’s price action. A breakout attempt is in play barring a violation.

Also see: Charting the approach of record highs, S&P 500 rises amid market rotation.

Monday’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 iShares Japan ETF US:EWJ is showing signs of life technically. (Yield = 2.1%.)

As illustrated, the shares have rallied to the range top, rising to challenge six-month highs.

The tight one-week range signals muted selling pressure near resistance, laying the groundwork for potentially decisive follow-through. An intermediate-term target projects to the 62.00 area.

Conversely, the prevailing range bottom (57.70) is followed by the 50- and 200-day moving averages, trending indicators that bisect the range. A breakout attempt is in play barring a violation.

Moving to specific names, Starbucks Corp. US:SBUX is a well positioned large-cap name. (Yield = 2.1%.)

Technically, the shares have rallied to challenge trendline resistance closely tracking the 200-day moving average, currently 79.14.

Last week’s tight range at the trendline — a coiled spring — positions the shares for a potentially decisive breakout.

Tactically, gap support (78.00) is followed by a recent inflection point matching the 50-day moving average, currently 75.80. The breakout attempt is intact barring a violation.

Emerson Electric Co. US:EMR is a well positioned large-cap name. (Yield = 2.9%.)

As illustrated, the shares have recently reclaimed the 200-day moving average, ultimately reaching five-month highs after the company’s quarterly results, released Aug. 4. The breakout punctuates a bullish cup-and-handle defined by the March and June lows.

By comparison, the prevailing pullback has been flat, fueled by decreased volume, placing the shares near the breakout point (69.30) and 3.8% under the August peak.

Also notice the pending golden cross — or bullish 50-day/200-day moving average crossover — signaling that the intermediate-term uptrend has overtaken the longer-term trend. A sustained posture atop the moving averages signals a comfortably bullish bias.

Initially profiled July 16, Catalent,Inc. US:CTLT has returned 8.7% and remains well positioned. The developer of drug delivery systems has agreements with AstraZeneca and Moderna to manufacture their respective COVID-19 vaccines.

Late last month, the shares gapped to record territory, rising after the company reported strong preliminary fourth-quarter results. (The complete quarterly results are due out Aug. 31.)

The subsequent tight August range is a continuation pattern, positioning the shares to build on the initial strong-volume spike. Tactically, the 50-day moving average is rising toward gap support (85.50). The prevailing uptrend is intact barring a violation.

Finally, Builders FirstSource, Inc. US:BLDR is a mid-cap manufacturer of building materials including lumber and flooring.

Earlier this month, the shares knifed to record highs, rising after the announcement that the company will be added to the S&P MidCap 400. (The actual addition became effective before the open Monday, Aug. 17.)

The ensuing pullback has been comparably flat, placing the shares 6.5% under the August peak. Tactically, gap support matches the breakout point (28.40). The prevailing rally attempt is intact barring a violation.

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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.