The Technical Indicator: Charting a decisive 2021 breakout: U.S. benchmarks clear 20-day volatility bands

Still, the slight downturn punctuates previously aggressive January breakouts amid a still comfortably bullish bigger-picture backdrop.

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 is digesting its latest break to all-time highs. The flattish initial pullback signals still muted selling pressure near record territory.

Tactically, initial support (3,783) is followed by an inflection point, circa 3,764.

Meanwhile, the Dow Jones Industrial Average US:DJIA  has also sustained its January breakout, notching three straight closes atop the 31,000 mark.

The prevailing bull flag — the tight four-session range, near record highs — is a bullish continuation pattern.

Slightly more broadly, the breakout punctuates a successful test of major support (29,964) on the year’s first session.

Against this backdrop, the Nasdaq Composite US:COMP has registered three straight closes atop the 13,000 mark.

To reiterate, the breakout point (12,973) marks a notable floor, and is followed by the Nasdaq’s former projected target (12,920).

Delving deeper, the prevailing upturn punctuates a successful first-day-of-the year test of major support (12,607).

Widening the view to six months adds perspective.

On this wider view, the Nasdaq is digesting its January break to record territory. Recall that the initial spike marked a 1.8% breakout, confirming the Nasdaq’s primary uptrend.

Tactically, the breakout point (12,973) pivots to support.

Delving deeper, the prevailing upturn originates from the 20-day moving average — a widely-tracked near-term trending indicator — and the former breakout point (12,607).

Looking elsewhere, the Dow Jones Industrial Average has sustained a more decisive break to record highs.

Consider that Monday’s modest downturn snapped a stretch of three straight closes atop the 20-day Bollinger bands to conclude a statistically unusual two standard deviation breakout.

As always, consecutive closes atop the Bollinger bands signal a tension between time horizons.

For the near-term, the index is extended — and due to consolidate — following a break outside the range encompassing two standard deviations of its trailing 20-day price volatility.

But more importantly, the decisive upside spike signals extreme bullish momentum, a backdrop likely to precede longer-term upside follow-through.

Meanwhile, the S&P 500 has also taken flight.

Its January breakout has encompassed two straight closes atop the 20-day volatility bands amid an unusually strong January breakout.

The bigger picture

Collectively, the major U.S. benchmarks are off to a bullish 2021 start.

On a headline basis, each big three U.S. benchmark has knifed to all-time highs — previously uncharted territory — rising from a successful early-January test of the 20-day moving average.

As always, the 20-day moving average is a widely-tracked near-term trending indicator.

Moreover, the subsequent rally from the 20-day moving average has been fueled by statistically unusual bullish momentum. Each big three benchmark has staged a two standard deviation breakout.

(On a granular note, the Dow Jones Industrial Average notched three straight closes atop the 20-day volatility bands, the S&P 500 registered two straight closes atop the 20-day bands, and the Nasdaq Composite managed a less reliable, but still bullish, lone close atop the bands.)

Moving to the small-caps, the iShares Russell 2000 ETF US:IWM  is digesting an unusually strong January spike.

Recall that its nearly 3.5% breakout confirms the primary uptrend.

More immediately, the prevailing pullback has been flat, fueled by decreased volume, likely laying the groundwork for longer-term follow-through.

Similarly, the SPDR S&P MidCap 400 ETF US:MDY  has taken flight, knifing to record highs.

Combined, the decisive small- and mid-cap breakouts are consistent with a bullish rotational market backdrop.

Looking elsewhere, the SPDR Trust S&P 500 US:SPY  has broken out less decisively, rising about 1.2% atop the 2020 peak.

Still, the breakout is nominally respectable, and sufficient to confirm the primary uptrend.

Placing a finer point on the S&P 500, the index has sustained its latest break to all-time highs.

To reiterate, initial support (3,783) is followed by an inflection point, circa 3,764.

Delving deeper, the 3,723-to-3,726 area marks the S&P’s first significant floor.

Widening to the six-month view, the S&P 500 has knifed to what will likely mark a higher plateau, atop the December peak. The prevailing upturn originates from the 20-day moving average.

Against this backdrop, the prevailing breakout has encompassed consecutive closes atop the 20-day Bollinger bands, signaling statistically unusual bullish momentum.

Though still near-term extended — and a consolidation phase remains underway — the S&P 500’s intermediate-term outlook remains comfortably bullish.

Also see: Charting a bull-trend whipsaw, S&P 500 absorbs pullback from record highs.

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 10-year Treasury note yield XX:TNX  has taken flight to start 2021, staging a likely consequential technical breakout.

In the process, the yield has extended its spike atop the marquee 1.00% mark

Tactically, the breakout confirms the yield’s late-2020 uptrend, detailed previously. The upturn punctuates an orderly December range, as well as a bullish triangle hinged to the late-November low.

More broadly, the upturn punctuates a massive double bottom, defined by the April and August lows. (See the one-year chart.) The rally above the former range top (0.97) has indeed produced swift upside follow-through.

On further strength, the March peak (1.27) remains a potential upside target, and is closely followed by the 2016 low (1.34). (Also see the Nov. 9 review and Dec. 3 review.)

Looking elsewhere, the United States Oil Fund US:USO  has also staged a January breakout. The fund tracks daily changes in the spot price of light, sweet crude oil.

The shares initially spiked about two months ago, gapping atop trendline resistance amid optimism that vaccine progress will promote global economic growth. The subsequent grinding-higher follow-through places the shares at eight-month highs.

Tactically, near-term support (33.50) is followed by the former breakout point (31.00) an area toward which the 50-day moving average is rising. The 50-day has marked a bull-bear inflection point, and a sustained posture higher signals a bullish bias.

More broadly, rising oil prices and interest rates (yields) would conventionally present a broad-market headwind. But against the prevailing backdrop, the resurgence more likely signals a reflation trade, an expected return toward pre-virus economic conditions.

Initially profiled July 23, Advanced Micro Devices, Inc. US:AMD  has returned 57.4% and remains well positioned.

As illustrated, the shares have rallied to the range top, rising to challenge all-time highs. (Monday’s close (97.25) marked a record close, by a narrow 13-cent margin.)

The upturn punctuates a relatively tight six-week range, laying the groundwork for a potentially decisive breakout. A near-term target projects to the 104 area on follow-through.

More broadly, recall that the late-2020 range is hinged to massive July breakout. (See the one-year chart.) The prevailing rally attempt is intact barring a violation of the range bottom (88.70).

Cisco Systems, Inc. US:CSCO  is a large-cap name setting up well for the near-term. (Yield = 3.3%.)

Technically, the shares have rallied to challenge four-month highs amid a January upturn. A near-term target projects to the 47 area on follow-through.

Conversely, notable support, circa 43.70, closely matches the August gap. A sustained posture higher signals a bullish bias.

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.

Finally, SolarEdge Technologies, Inc. US:SEDG  is a well positioned Israel-based large-cap name.

Earlier this month, the shares knifed to record highs, rising amid a volume spike after the Georgia runoff Senate elections.

The ensuing pullback has been orderly, fueled by decreased volume, placing the shares near the breakout point (335.50) and 7.1% under the January peak.

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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.