By Michael Ashbaugh, MarketWatch
Focus: 10-year yield vies for technical breakout, Retail sector sustains rally attempt, TNX, XRT, SPOT, TEAM, PAYC
Technically speaking, the major U.S. benchmarks have weathered a respectable market whipsaw to start the worst six months seasonally -- May through October.
Against this backdrop, the S&P 500 has maintained key support (2,793) amid a May pullback that has inflicted limited technical damage in the broad sweep.
Before detailing the U.S. markets' wider view, the S&P 500's hourly chart highlights the past two weeks.
As illustrated, the S&P has absorbed a respectable pullback from major resistance (2,954).
The April peak (2,954.86), established last week, matched resistance.
Conversely, the downturn has been underpinned by the S&P's 50% retracement of the 2020 crash (2,793). This area remains a downside inflection point.
Similarly, the Dow Jones Industrial Average has pulled in to its former range.
Within the range, recall that last week's low (23,645) closely matched the Dow's 20% pullback mark (23,640).
Delving deeper, the downturn has been underpinned by the 23,340 area, a level roughly matching several former gaps, also detailed on the daily chart (23,328).
True to recent form, the Nasdaq Composite remains the strongest major benchmark.
Tactically, a familiar inflection point closely matches the November peak (8,705), also detailed below.
Monday's close (8,710) registered nominally higher, and the index has extended its upturn early Tuesday.
Widening the view to six months adds perspective.
On this wider view, the Nasdaq has absorbed a respectable early-May downturn. In the process, the index has whipsawed near the 8,705 inflection point.
More broadly, familiar deeper support points remain in play:
Combined, major support broadly spans from about 8,240 to 8,430. A sustained posture atop this area signals a bullish intermediate-term bias.
Recall that the mid-April closing low (8,263) registered slightly atop major support, punctuating a successful retest.
Looking elsewhere, the Dow Jones Industrial Average has balked at next resistance.
The specific area matches the June 2019 low (24,680) and the February low (24,681).
Conversely, two downside inflection points stand out:
The week-to-date low (23,361) has registered slightly above support, punctuating a successful retest.
Deeper support matches the mid-April low (22,941). An eventual violation would mark a material "lower low" -- combined with a posture under the 50-day moving average -- raising a technical caution flag.
Meanwhile, the S&P 500's recovery attempt has thus far stalled at next resistance (2,954).
The April peak (2,954.86) matched the inflection point, and the index has pulled in respectably.
The bigger picture
As detailed above, the major U.S. benchmarks have weathered a respectable early-May market downdraft.
Recall that May marks the beginning of the markets' worst six months seasonally, a U.S. and global-market phenomenon.
Seemingly on cue, aggressive selling pressure surfaced May 1, in the form of a nearly 12-to-1 down day. (A down day means that NYSE declining volume surpassed advancing volume by the stated margin.)
As detailed previously, the May 1 downturn marked the strongest selling pressure since the April 1 session, to start the second quarter. That session was also fueled by nearly 12-to-1 negative breadth, though downside follow-through failed to register. In fact, the April 1 session low defined the April low, and the U.S. benchmarks have subsequently extended their recovery attempt.
Moving to the small-caps, the iShares Russell 2000 ETF has also pulled in from the April peak.
The downturn has initially been underpinned by support -- the 123.10-to-124.88 area -- levels matching the 50-day moving average and the breakout point. The successful retest preserves the prevailing rally attempt.
Similarly, the SPDR S&P MidCap 400 ETF has pulled in to a thus far successful test the 50-day moving average, currently 283.40.
Against this backdrop, the SPDR Trust S&P 500 remains incrementally stronger.
Though a retest of the breakdown point (284.80) remains in play, the SPY has maintained a posture more firmly atop its 50-day moving average.
Moving to the four-year view, the S&P 500 has registered a massive rally from the March low, rising as much as 763 points, or 34.8%.
Recall that the April peak (2,954.86) -- established last week -- matched the next designated overhead (2,954). Relatively aggressive selling pressure subsequently surfaced to start May.
More immediately, support matches the 50% retracement of the crash (2,793). The week-to-date low (2,797) has registered slightly atop the retracement. (Also see the hourly chart.)
Placing a finer point on the S&P 500, an early-May consolidation phase seems to be underway.
To reiterate, the downturn from major resistance (2,954) was fueled by 12-to-1 negative breadth.
In a textbook world, two 9-to-1 down days, across about a seven-session window, would reliably signal a material trend shift. So the clock is ticking on potentially comparable downside follow-through over about the next week. (Recall that the similar April 1 downdraft failed to follow-through lower.)
Tactically, notable support matches the S&P's 50% retracement (2,793), detailed on the four-year chart, and the hourly chart. The index has initially maintained this area.
Delving deeper, three important levels stand out:
An eventual violation of this area would mark a "lower low" -- combined with a posture under the 50-day moving average -- likely raising a technical caution flag.
Collectively, an early-May consolidation phase is underway to start the worst six months seasonally. A pullback was overdue following a nearly 35% rally from the March low.
Against this backdrop, the S&P 500's intermediate-term bias remains bullish to the extent it maintains major support -- the 2,735-to-2,742 area -- detailed above. The next several sessions will likely add color.
Also see: Charting a slow-motion breakout attempt, S&P 500 challenges major resistance (2,874) ().
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 has flatlined of late, digesting a massive 2020 downdraft.
More specifically, the yield has asserted a tight two-week range, capped by the 20-day moving average, currently 0.66. As always, the 20-day moving average is a widely-tracked near-term trending indicator.
In the current case, the 20-day has capped the yield's 2020 price action, aside from a two session mid-March whipsaw.
Against this backdrop, the yield's 20-day Bollinger bands have tightened, () positioning it for a potentially sharp break in either direction. (See the early-January and early-February coils, and subsequent pronounced downside follow-through.)
So the pending break from the range -- spanning from 0.54 to 0.66 -- will likely set the yield's near-term technical tone. The yield has ventured fractionally atop the 20-day moving average early Tuesday, and a breakout attempt remains underway.
Upside follow-through likely opens the path to resistance (0.79) matching the March gap and the April peak. The 50-day moving average, currently 0.80, also matches next resistance.
Moving to U.S. sectors, the SPDR S&P Retail ETF is acting well technically.
As illustrated, the group has staged a bull-flag breakout, clearing resistance matching the 50-day moving average and the March gap.
The ensuing pullback has been orderly, underpinned by the breakout point (34.70), a level detailed last week (). Monday's session low (34.73) registered fractionally atop support.
Underlying the upturn, the group's relative strength index (not illustrated) has recently tagged a year-to-date peak, improving the chances of a durable rally attempt.
On further strength, the April peak (38.43) is followed by the 200-day moving average, currently 40.90, and the slightly more distant breakdown point (41.10). The eventual retest from underneath will likely add color. (Also see the April 21 review ().)
Public since April 2018, Spotify Technology S.A. (SPOT) is a large-cap Sweden-based provider of streaming-audio services.
Late last month, the shares gapped sharply higher, rising amid a volume spike after the company's first-quarter results.
The subsequent pullback has been fueled by decreased volume, placing the shares at an attractive entry near trendline support and 11.4% under the April peak. Tactically, the trendline is closely followed by 200-day moving average, currently 139.05, and the prevailing recovery attempt is intact barring a violation.
Initially profiled Jan. 7, Atlassian Corp. (TEAM) has returned 27.3% and remains well positioned.
As illustrated, the shares have knifed to record territory, rising amid a delayed reaction to the company's quarterly results, released last week. The breakout punctuates a modified head-and-shoulders bottom defined by the February, March and April lows.
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May 05, 2020 13:19 ET (17:19 GMT)
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