The Technical Indicator: Charting a bear-market rally attempt, S&P 500 spikes from major support (2,190)

Technically speaking, the major U.S. benchmarks have reversed sharply from the March low, rising in the wake of an historic market downdraft.

In the process, the S&P 500 has spiked Tuesday from major support (2,190), rising amid a bigger-picture technical backdrop (including sentiment) that may be sufficient to support at least an intermediate-term market low.

Before detailing the U.S. markets’ wider view, the S&P 500’s

SPX, +9.38%

 hourly chart highlights the past two weeks.

As illustrated, the S&P has reversed from its latest three-year low.

In the process, the index has initially maintained its next notable floor — the mid-2016 range top (2,190) — detailed previously. The quality of the prevailing rally attempt should add color.

Similarly, the Dow Jones Industrial Average

DJIA, +11.37%

 has reversed from three-year lows.

The March low (18,213) marks the Dow’s worst level since November 2016.

Also consider that three of the prior four closes have registered under the 20,000 mark. Tactically, near-term overhead (19,882) is followed by the post-breakdown peak (20,531).

Against this backdrop, the Nasdaq Composite

COMP, +8.12%

 remains relatively stronger.

The index slipped just 0.3% Monday while the S&P 500 and Dow industrials notched daily downdrafts of about 3.0%.

Tactically, the session close (6,860) roughly matched first resistance, and the Nasdaq has extended its rally attempt early Tuesday.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has reversed from 14-month lows.

Consider that Tuesday’s early session low (7,184) roughly matched first resistance (7,194) and the index has followed through. Constructive price action.

From current levels, the pending test of the breakdown point — the 7,700-to-7,712 area — should be a useful bull-bear gauge. A swift reversal atop this area would mark technical progress.

Looking elsewhere, the Dow Jones Industrial Average has registered a more aggressive March downdraft.

The index snapped a stretch of 10 straight 1,000+ point daily ranges in Monday’s action.

Still, the Dow has registered 11 straight 900+ point daily ranges, and is currently working from a lower base under the 20,000 mark. (I.e. It is mathematically more difficult to register a 1,000-point move as the Dow’s nominal level shrinks.)

Meanwhile, the S&P 500 has reversed from three-year lows.

The reversal punctuates a successful test of its next notable support — the mid-2016 range top (2,190) — detailed previously. (Also see the Dec. 13, 2016 review.)

More immediately, Tuesday’s early session low (2,344) has closely matched first resistance (2,346). This area matches the 2018 low, and is better illustrated on the four-year chart, detailed in the next section.

The bigger picture

Collectively, the major U.S. benchmarks are attempting to rally in the wake of an historic early-2020 market downdraft.

The scope of each benchmark’s plunge from its record close, to Monday’s close, falls out as follows:

  • The Dow industrials have plunged 10,960 points, or 37.1%, from the record close (29,551), established Feb. 12.
  • The Nasdaq Composite has plunged 2,957 points, or 30.1%, from its record close (9,817), established Feb. 19.
  • The S&P 500 has plunged 1,149 points, or 34.9%, from its record close (3,386), established Feb. 19.

In the process, extensive technical damage has been inflicted. Though a corrective bounce is overdue — and currently underway — the prevailing backdrop supports a bearish intermediate- to longer-term bias pending repairs.

Moving to the small-caps, the iShares Russell 2000 ETF has reversed from four-year lows, its worst levels since February 2016.

Tactically, initial resistance spans from about 108.40 to 109.55, detailed previously.

This area has initially capped the rally attempt, though the retest from underneath remains underway.

Meanwhile, the SPDR S&P MidCap 400 ETF has briefly tagged six-year lows.

Tactically, the post-breakdown peak — the 246.80-to-247.40 area — marks an inflection point. The eventual retest from underneath should add color.

Meanwhile, the SPDR Trust S&P 500

SPY, +9.06%

 has reversed from three-year lows.

Consider that the 2020 downdraft has been fueled by a massive sustained volume increase. Also recall the flattish lighter-volume early-March rally attempt. Bearish bigger-picture price action.

Placing a finer point on the S&P 500, the index has plunged amid wide-ranging price action.

Against this backdrop, recall that the March 13 weekly close (2,711) matched the S&P’s 20% pullback mark (2,709).

The index subsequently dropped last week an incremental 406 points, or 14.98%, its worst weekly performance since 2008.

The downturn has been punctuated by consecutive closes under major support matching the 2018 low (2,346). (Recall that Tuesday’s session low (2,344) has matched this inflection point.)

Making the recovery case — An intermediate-term low may have been established

Moving to a potential bright spot, a viable case can be made that at least an intermediate-term market low has been established.

To start, Tuesday’s bullish reversal punctuates a successful test of the S&P 500’s next notable support (2,190), detailed Monday. This area matches the mid-2016 range top. (Also see, for instance, the Dec. 13, 2016 review.)

And perhaps as notably, the prevailing rally attempt has registered against a favorable market sentiment backdrop, as measured by the CBOE Volatility Index.

On a headline basis, the S&P 500 registered a material “lower low” in Monday’s action — a 2.9% single-day drop — while the

VIX, +0.13%

 VIX did not register a corresponding “higher high.”

Also recall that Tuesday’s session low (2,344) has matched a key inflection point at the 2018 low (2,346). The swift reversal atop this area is constructive. (Also see the four-year chart.)

So collectively, a viable bear-market rally attempt seems to be underway Tuesday. The S&P has maintained major support (2,190) — and reclaimed key resistance (2,346) — amid an improving sentiment backdrop.

Still, the rally attempt’s durability remains a major question mark.

As it applies to the S&P 500, its next notable resistance spans from about 2,467 to 2,478. The pending retest of this area, from underneath, should be a useful bull-bear gauge. As always, the chances of upside follow-through improve to the extent the S&P holds tightly to resistance.

Beyond the prevailing recovery attempt, extensive technical damage has been inflicted. The S&P 500’s bigger-picture backdrop supports a firmly-bearish intermediate- to longer-term bias pending repairs.

Also see: Charting a corrective bounce, S&P 500 attempts rally amid historic volatility spike.

Also see: Charting a technical breakdown, S&P 500 violates major support.

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.

Company Symbol Date Profiled
Karyopharm Therapeutics, Inc. KPTI Mar. 20
Domino’s Pizza, Inc. DPZ Mar. 20
AMN Healthcare Services, Inc. AMN Mar. 19
Walmart, Inc. WMT Mar. 19
Kroger Co. KR Mar. 19
Zoom Video Communications, Inc. ZM Mar. 19
iShares MSCI Emerging Markets ETF* EEM Mar. 19
eHealth, Inc. EHTH Jan. 31
Newmont Corp. NEM Jan. 13
Atlassian Corp. TEAM Jan. 7
SPDR Gold Shares ETF GLD Jan. 2
Advanced Micro Devices, Inc. AMD Nov. 7
Teledoc Health, Inc. TDOC Nov. 1
Costco Wholesale Corp. COST Mar. 6
Microsoft Corp. MSFT Feb. 22
* Not necessarily well positioned, though a recovery attempt is intact
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