The Technical Indicator: Charting market rotation, S&P 500 presses record territory

As illustrated, the S&P has weathered Monday’s brief whipsaw under the breakout point (3,826) a move that swiftly filled last week’s gap.

The subsequent bullish reversal — to close near session highs — places record territory just overhead. The S&P’s latest bull-flag breakout attempt is underway early Tuesday.

True to recent form, the Dow Jones Industrial Average US:DJIA  continues to lag behind.

The index briefly tagged record highs last week without technically breaking out.

The prevailing pullback preserves a range-bound near-term backdrop. Tactically, the Dow’s former range bottom, circa 30,790, remains an inflection point.

Meanwhile, the Nasdaq Composite US:COMP continues to take flight.

Technically, the index has extended its recent gap to record territory, notching four straight record closes.

The prevailing upturn punctuates a mid-month bull flag, also illustrated on the daily chart below.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has extended a bull-flag breakout, knifing to all-time highs.

The prevailing four-session spike marks a 3.1% technical breakout, confirming the primary uptrend.

Separately, the prevailing upturn also marks a two standard deviation breakout, encompassing three straight closes atop the 20-day volatility bands. (Monday’s close nearly marked a fourth straight close atop the bands, missing by just two hundredths of a point.)

Though still near-term extended — and due to consolidate at some point — the Nasdaq’s statistically unusual January rally is longer-term bullish.

Tactically, the top of the gap (13,329) is followed by the firmer breakout point (13,220).

Looking elsewhere, the Dow Jones Industrial Average continues to lag behind, pulling in modestly from last week’s nominal record high.

Still, recall that its early-January breakout marked the strongest of the big three U.S. benchmarks. (The Dow notched three straight closes atop its 20-day Bollinger bands to start January.)

So combined, the Dow’s comparably sluggish prevailing price action — as the Nasdaq takes flight — is consistent with a healthy rotational market backdrop.

Meanwhile, the S&P 500 has sustained a respectable — though not off-the-charts aggressive — technical breakout.

Recall that the prevailing upturn originates from the 20-day moving average and near-term support (3,764).

The bigger picture

Collectively, the major U.S. benchmarks continue to trend higher. Each big three U.S. benchmark has recently tagged all-time highs, though amid breakout attempts that get mixed marks for style.

On a headline basis, the Nasdaq Composite has taken flight — rising amid statistically unusual momentum — while the Dow industrials’ recent price action remains comparably sluggish. The S&P 500’s backdrop splits the difference.

Amid the rotational backdrop, each benchmark’s intermediate-term bias remains bullish.

Moving to the small-caps, the iShares Russell 2000 ETF US:IWM  continues to grind higher.

Last week’s close (215.00) marked a record close, and the small-cap benchmark has tagged an absolute record peak this week. Selling pressure remains flat.

Similarly, the SPDR S&P MidCap 400 ETF US:MDY  has asserted a bullish flag-like pattern.

The recently persistent small- and mid-cap strength is also consistent with rotational market price action.

Looking elsewhere, the SPDR Trust S&P 500 US:SPY  has rallied less decisively to record highs.

Still, the SPY has sustained its break to a higher plateau. The prevailing upturn originates from the 20-day moving average, a widely-tracked near-term trending indicator.

Placing a finer point on the S&P 500, the index has sustained last week’s break to record territory.

The prevailing bull flag — the relatively tight four-session range — marks the latest continuation pattern.

Tactically, the breakout point (3,826) remains the S&P’s first notable floor.

More broadly, the prevailing upturn punctuates a successful test of the 20-day moving average, and familiar near-term support (3,746).

Delving deeper, the ascending 50-day moving average, currently 3,706, is rising toward major support in the 3,723-to-3,726 area, levels matching the December gap and the former breakout point.

Tactically, an eventual violation of these areas would likely raise a caution flag.

Beyond specific levels, the S&P 500’s intermediate-term bias remains bullish, based on today’s backdrop. A near-term target continues to project to the 3,890-to-3,900 area.

Also see: Charting a bullish holding pattern, S&P 500 maintains 20-day average.

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 Financial Select Sector SPDR US:XLF  is acting well technically. (Yield = 2.2%.)

The group started the new year with a breakout, ultimately tagging record highs amid surging Treasury yields. (The group’s January price action mirrors that of the 10-year Treasury note yield in many respects.)

The breakout punctuates a tight December range, hinged to the steep November vaccine-fueled rally.

More immediately, the prevailing pullback places the group near gap support (29.77) and 5.0% under the January peak. Monday’s session low registered within three cents of gap support.

Delving deeper, the 50-day moving average, currently 29.08, closely matches the former range top, circa 29.00. The group’s uptrend is firmly-intact barring a violation.

Meanwhile, the SPDR S&P Retail ETF US:XRT  continues to take flight.

As illustrated, the group has knifed to all-time highs, rising amid a volume spike.

The upturn punctuates a bull flag, the tight range hinged to the sharp early-January rally. The initial spike marked an unusual two standard deviation breakout, encompassing six closes atop the 20-day volatility bands across a seven-session span. January momentum has registered as extreme in several spots.

Though still near-term extended, and due to consolidate, the strong 2021 start is longer-term bullish. Tactically, the breakout point (74.10) is followed by near-term support, circa 71.80.

Moving to specific names, Prudential Financial, Inc. US:PRU  is a well positioned large-cap name. (Yield = 5.3%.)

Earlier this month, the shares rallied to 11-month highs, clearing resistance matching the December peak.

The subsequent pullback places the shares near the breakout point (81.30) — a level closely matching trendline support — and 4.5% under the January peak.

Delving slightly deeper, the 50-day moving average, currently 78.70, closely matches the early-January gap. A sustained posture higher signals a bullish bias.

Initially profiled Oct. 13, First Solar, Inc. US:FSLR  has returned 26.5% and remains well positioned.

As illustrated, the shares have rallied to the range top, rising to briefly tag nine-year highs. An intermediate-term target projects to the 117 area on follow-through.

Conversely, trendline support is rising toward the former range top, circa 98.00. A breakout attempt is in play barring a violation.

More broadly, the shares are well positioned on the 10-year chart, extending the break from a multi-year base.

Rio Tinto Group US:RIO  is a large-cap U.K.-based producer of copper, aluminum, iron ore and related minerals. (Yield = 4.8%.)

Technically, the shares started January with a strong-volume breakout, knifing to 12-year highs.

The ensuing pullback places the shares near gap support (79.50) and 7.2% under the January peak.

More broadly, the shares are well positioned on the 30-year chart, reaching less-charted territory from a prolonged multi-year base.

Finally, Sorrento Therapeutics, Inc. US:SRNE  is a mid-cap biotech name coming to life.

Earlier this month, the shares knifed atop trendline resistance, reaching three-month highs.

The subsequent pullback has been fueled by decreased volume, placing the shares 16.2% under the January peak. Tactically, the breakout point (8.55) pivots to support. The prevailing rally attempt is intact barring a violation.

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.