By Michael Ashbaugh, MarketWatch
Focus: Europe digests technical breakdown, Emerging markets maintain key support, IEV, EEM, COST, PINS, SNE, EGHT
Technically speaking, U.S. stocks are off to a strong November start, rising respectably to begin the best six months seasonally -- November through April.
Against this backdrop, the S&P 500 has extended a rally from major support (3,233), rising within striking distance of a key bull-bear inflection point closely matching the 50-day moving average.
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 rallied from its next notable floor.
Recall that last week's low (3,233.9) matched support at the June peak (3,233).
More immediately, the S&P has extended its rally attempt early Tuesday. Additional overhead matches the top of the gap (3,388.7) and the February peak (3,393).
Meanwhile, the Dow Jones Industrial Average has survived a major technical test.
Specifically, the index has maintained its 200-day moving average, currently 26,180.
Separately, the Dow has also maintained major support, circa 26,537, with a strong November start. Both the 200-day and major support are also detailed on the daily chart.
Against this backdrop, the Nasdaq Composite is also traversing a lower plateau.
Tactically, major resistance (11,245) closely matches the bottom of the gap (11,249).
Conversely, the Nasdaq has maintained its former breakout point, a level matching the July peak (10,840), illustrated below.
Widening the view to six months adds perspective.
On this wider view, the Nasdaq has maintained major support (10,840) closely matching the July peak and the August gap. The prevailing rally attempt punctuates a successful retest.
Conversely, the index has violated key technical levels, including the mid-September range top (11,245) and the 50-day moving average, currently 11,296.
Moreover, the Nasdaq failed a retest of each area to conclude last week. (See the hourly chart.)
Tactically, a sustained reversal atop the 50-day moving average would strengthen the bull case. The pending retest from underneath will likely add color.
Looking elsewhere, the Dow Jones Industrial Average remains the weakest major benchmark.
Still, the index has narrowly maintained two key technical areas. Specifically:
Though the Dow briefly ventured under support to conclude last week, the strong November start punctuates a jagged retest.
Consider that Friday's bullish reversal -- a dragonfly doji, underpinned by the 200-day moving average -- has been punctuated by upside follow-through to start this week.
On further strength, the June peak (27,580) is followed by the more distant 50-day moving average, currently 27,902.
Meanwhile, the S&P 500 has reversed respectably from major support.
Recall that last week's low (3,233.9) effectively matched the June peak (3,233). A rally attempt is underway to start November.
The bigger picture
Collectively, the major U.S. benchmarks are off to a constructive November start, rising in the wake of a damaging market downdraft.
Against this backdrop, each big three U.S. benchmark survived a key technical test to conclude last week.
Specifically, the S&P 500 nailed major support (3,233), the Dow industrials maintained the 200-day moving average and the Nasdaq Composite has rallied from its former breakout point (10,840).
The quality of the prevailing rally attempt will likely add color to start November, and the best six months seasonally.
Moving to the small-caps, the iShares Russell 2000 ETF is digesting a strong-volume late-October downdraft.
Tactically, a retest of the 50-day moving average, currently 155.15, remains underway.
Similarly, the SPDR S&P MidCap 400 ETF gapped firmly lower, violating key technical levels to conclude October.
More immediately, the MDY has whipsawed at its 50-day moving average, currently 349.65.
Looking elsewhere, the SPDR Trust S&P 500 violated major support amid increased volume to conclude October.
Against this backdrop, the SPY has maintained support matching the June peak (323.41).
From current levels, overhead inflection points match the February closing peak (338.34) -- (formerly the record close) -- and the 50-day moving average, currently 338.86. A rally atop this area would strengthen the bull case.
Placing a finer point on the S&P 500, the index is digesting a market downdraft amid technical price action. The index is closely observing well-defined levels.
To start, last week's low (3,233.9) punctuated a successful test of the June peak (3,233).
Also consider two recent failed technical tests from underneath. Specifically, Thursday's session high (3,341) and Monday's high (3,330) closely matched familiar resistance.
More immediately, the S&P 500 is starting the best six months seasonally -- November through April -- amid the U.S. election overhang, and in the wake of material technical damage. (Last week marked the worst week since March.)
The S&P 500 has asserted a bearish-leaning intermediate-term bias, based on today's backdrop, though key technical tests are within view.
As detailed last week, () a clear election result could lay the groundwork for a bullish shift in market structure.
Tactically, the S&P 500 has extended its rally attempt early Tuesday, rising into the October gap.
More distant overhead matches the top of the gap (3,388.7) the February peak (3,393) and the 50-day moving average, currently 3,400. Follow-through atop this area would signal waning bearish momentum, strengthening the intermediate-term bull case.
The quality of the prevailing rally attempt, and the next several sessions, will likely add color.
Also see: Charting market cross currents, S&P 500 violates the breakout point ().
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 iShares Europe ETF has broken down technically, pressured amid renewed economic lockdowns across parts of the region.
In the process, the shares have violated the 200-day moving average, plunging to four-month lows. The downturn punctuates a modified head-and-shoulders top defined by the July, August and October peaks.
Tactically, the breakdown point (40.70) closely matches the 200-day moving average, currently 40.60. A rally atop this area would place the brakes on bearish momentum.
Meanwhile, the iShares MSCI Emerging Markets ETF (EEM) remains relatively resilient. (Yield = 2.6%.)
To be sure, the shares have pulled in to the range, from two-year highs, pressured amid increased volume.
Still, the downturn has been underpinned by the 50-day moving average, currently 44.84, placing the shares just 2.3% under the October peak.
More broadly, the shares remain well positioned on the three-year chart, () rising from a continuation pattern hinged to the massive early-2020 V-shaped reversal.
Initially profiled July 15, Costco Wholesale Corp. (COST) has returned 11.1% and remains well positioned.
As illustrated, the shares have staged an orderly pullback from record highs, reaching an attractive entry 5.6% under the October peak.
Tactically, the breakout point (363.00) is followed by the 50-day moving average, currently 356.40, and slightly deeper trendline support. The prevailing uptrend is intact barring a violation.
Public since April 2019, Pinterest, Inc. (PINS) is a well positioned large-cap name.
Late last month, the shares gapped to record highs, rising after the company's strong third-quarter results.
The subsequent pullback has been fueled by decreased volume, placing the shares 18.1% under the October peak.
Tactically, the post-breakout low (56.30) is followed by an inflection point matching the mid-October peak (53.90). A sustained posture higher signals a firmly-bullish bias.
Sony Corp. (6758.TO) is a large-cap Tokyo-based name coming to life.
The shares concluded October with a trendline breakout, knifing to 20-year highs after the company's second-quarter results and upwardly revised full-year outlook.
The strong-volume spike marks a bullish two standard deviation breakout, encompassing four straight closes atop the 20-day Bollinger bands ().
Though near-term extended, and due to consolidate, the shares are attractive on a pullback. Tactically, the breakout point (84.10) is followed by near-term support, circa 82.50.
Finally, 8x8, Inc. (EGHT) is a mid-cap developer of video, voice and chat software solutions.
Technically, the shares have recently gapped to five-month highs, rising after the company's quarterly results.
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November 03, 2020 12:37 ET (17:37 GMT)
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