The Technical Indicator: Charting a bull-flag breakout, S&P 500 ventures atop 200-day average

Against this backdrop, the S&P 500 has rallied to a potentially consequential test of its 200-day moving average, currently 3,000. As always, the 200-day is a widely-tracked longer-term trending indicator, meaning that a sustained breakout would raise the flag to a primary trend shift.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +1.91% hourly chart highlights the past two weeks.

As illustrated, the S&P continues to challenge its range top.

Last week’s close (2,955) matched major resistance (2,954) and the index has extended firmly higher early Tuesday.

Against this backdrop, a retest of the 200-day moving average, currently 3,000, is underway to start this week.

Similarly, the Dow Jones Industrial Average has held tightly to its range top.

Tactically, resistance at the June low (24.680) effectively capped last week’s range, an area also detailed on the daily chart.

The index has followed through early Tuesday, knifing from the flag-like pattern to less-charted territory.

True to recent form, the Nasdaq Composite COMP, +1.02% remains the strongest major benchmark.

Tactically, recall that major resistance matches the February gap (9,323) an area also detailed on the daily chart below.

Last week’s close (9,324) matched the inflection point.

Conversely, the Nasdaq has maintained its breakout point (9,250) across consecutive sessions.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has sustained a modest break to three-month highs.

To reiterate, last week’s close (9,324) matched resistance at the bottom of the February gap (9,323).

Additional overhead matches the January peak (9,451) and the top of the February gap (9,542).

More broadly, the prevailing uptrend tracks atop the 20-day moving average, and originates from a bullish island reversal at the April low. As it applies to the Nasdaq, all trends — the near- intermediate- and longer-term trends — currently point higher.

Looking elsewhere, the Dow Jones Industrial Average is challenging its range top, rising from a successful test of the 50-day moving average.

Tactically, major resistance matches the June 2019 low (24,680) and the February 2020 low (24,681).

The prevailing tight one-week range signals muted selling pressure near resistance, laying the groundwork for Tuesday’s early follow-through. (Also see the hourly chart.)

More distant overhead matches the mid-March peak (25,021) and the top of the early-March gap (25,226).

Similarly, the S&P 500 has asserted a tight one-week range, challenging major resistance (2,954).

This week’s strong start punctuates a bull-flag breakout, placing the 200-day moving average, currently 3,000, firmly under siege.

The bigger picture

As detailed above, the major U.S. benchmarks are acting well technically, rising amid still uneven post-crash price action.

Against this backdrop, each big three benchmark has extended its rally attempt, tagging an 11-week high (or better) to start this week.

Moving to the small-caps, the iShares Russell 2000 ETF has extended a rally from its 50-day moving average.

Tactically, overhead inflection points match the April peak (136.85) and the top of the March gap (140.99). The latter is within striking distance early Tuesday.

Similarly, the SPDR S&P MidCap 400 ETF has asserted a bull flag, digesting a strong-volume spike from the 50-day moving average.

As always, the flag is a continuation pattern, in this case improving the chances of upside follow-through.

Looking elsewhere, the SPDR Trust S&P 500 SPY, +1.91% also asserted a flag-like pattern, digesting the steep mid-May rally.

More immediately, the SPY has ventured atop its marquee 200-day moving average, currently 299.60, to start this week.

On further strength, major overhead spans from about 302.20 to 302.60, levels matching the July and September 2019 peaks. (The mid-2019 range top.)

Moving to the four-year view, the S&P 500 continues to challenge major resistance (2,954).

To reiterate, last week’s close (2,955) effectively matched resistance. (It also marked the best post-crash weekly close.)

The S&P has ventured firmly atop resistance early Tuesday, though as always, it’s the session close that matters.

Conversely, the range bottom matches the 50% retracement of the 2020 crash (2,793). The S&P has not closed under the retracement since April 21. (Also see the hourly chart.)

Placing a finer point on the S&P 500, the index more or less hugged major resistance (2,954) last week.

To reiterate, the tight one-week range signals muted selling pressure near resistance, laying the groundwork for this week’s “expected” upside follow-through.

Slightly more broadly, the current approach marks the third test of the 2,954 area, and major resistance is frequently cleared on the third or fourth approach.

The breakout places the S&P’s 200-day moving average, currently 3,000, firmly under siege. Consider that Tuesday’s session low (3,004) has registered atop the 200-day, and the index has thus far sustained its gains.

As always, the 200-day moving average is a widely-tracked longer-term trending indicator. So the S&P’s posture higher early Tuesday raises the flag to a potential primary trend shift.

On further strength, additional resistance matches the July peak (3,028), also the mid-2019 range top. Follow-through atop this level would punctuate about a 1% break atop the 200-day moving average, more firmly signaling a longer-term trend shift.

All told, the S&P 500’s intermediate-term bias remains bullish amid constructive May price action. Meanwhile, a potentially consequential test of the 200-day moving average is currently in play. The rally’s sustainability and follow-through, across the next several sessions, will add color to the S&P’s longer-term technical bias.

Also see: Charting a headline breakout attempt, S&P 500 nails major resistance (2,954).

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 Invesco QQQ Trust QQQ, +0.62% — an ETF designed to track the Nasdaq 100 Index — has sustained a break to three-month highs.

Against this backdrop, the record close (236.98) and absolute record peak (237.47), both established Feb. 19, are increasingly within striking distance.

Tactically, a near-term floor matches the trendline and top of the gap (225.50). Delving deeper, firmer support matches the former breakout point (216.00). A sustained posture higher signals a bullish intermediate-term bias.

Moving to specific names, Twilio, Inc. TWLO, -5.13% is a large-cap developer of cloud communications software solutions.

Earlier this month, the shares knifed to record territory, gapping sharply higher after the company’s first-quarter results.

The subsequent flag pattern formed amid decreased volume, and has been punctuated by upside follow-through. Tactically, the breakout point pivots to support (195.50) and the prevailing rally attempt is firmly intact barring a violation.

Lam Research Corp. LRCX, +3.11% is a large-cap chip equipment name showing signs of life. (Yield = 1.8%.)

As illustrated, the shares are challenging trendline resistance closely matching the 200-day moving average, currently 262.50. The prevailing tight one-week range signals muted selling pressure, laying the groundwork for potentially more decisive follow-through.

Tactically, a near-term floor matches the range bottom (253.50) and a breakout attempt is in play barring a violation.

Marvell Technology Group, Ltd. MRVL, +3.26% is a large-cap semiconductor name and a contributor to the 5G buildout.

Technically, the shares have broken out, reaching 14-year highs ahead of the company’s quarterly results, due out May 28. The prevailing upturn punctuates a successful test of the 200-day moving average.

Though near-term extended, and due to consolidate, the shares are attractive on a pullback. Well-defined support matches the breakout point (28.50).

Finally, Take-Two Interactive Software, Inc. TTWO, -4.98% is a well positioned large-cap video game developer.

As illustrated, the shares have recently knifed to all-time highs, rising after the company’s quarterly results.

The subsequent pullback places the shares 6.2% under the May peak. Notable support broadly spans from about 133.40 to 135.00, and a posture higher signals a firmly-bullish bias.

More broadly, the shares are well positioned on the four-year chart, reaching previously uncharted from a multi-year base.

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.