The Technical Indicator: Charting a May whipsaw, S&P 500 holds key support to start worst six months seasonally

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
SPX,
+0.90%

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
DJIA,
+0.56%

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
COMP,
+1.13%

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:

  • The 50% retracement of the 2020 crash (8,235).
  • Former resistance matching the September peak (8,243).
  • The late-2019 breakout point (8,339).
  • The 200-day moving average, currently 8,432.

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 50-day moving average, currently 23,279.
  • Gap support, circa 23,328, an area also detailed on the hourly chart (23,340).

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:

  • Major support at 2,742.
  • The descending 50-day moving average, also currently 2,742.
  • The mid-April closing low of 2,736.56.

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
TNX,
+3.14%

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,
-0.20%

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,
+3.95%

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.

Though near-term extended, and due to consolidate, the strong-volume spike is longer-term bullish. A well-defined floor matches the breakout point (154.00), and a sustained posture higher signals a firmly-bullish bias.

Finally, Paycom Software, Inc.
PAYC,
+3.57%

is a large-cap developer of payroll and related human resources software solutions.

Technically, the shares have recently knifed atop trendline resistance, reaching nearly two-month highs after the company’s quarterly results.

The ensuing pullback has been comparably flat, fueled by decreased volume, placing the shares 9.1% under the April peak.

Tactically, the breakout point (229.50) is closely followed by the 50-day moving average, a level almost precisely tracking the trendline. 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.

Company

Symbol* (Click symbol for chart.)

Date Profiled

CrowdStrike Holdings, Inc.

CRWD

May 4

iRobot Corp.

IRBT

May 4

Steel Dynamics, Inc.

STLD

May 4

F5 Networks, Inc.

FFIV

May 1

Eli Lilly & Co.

LLY

May 1

Cummins, Inc.

CMI

Apr. 30

NetApp, Inc.

NTAP

Apr. 30

AudioCodes, Ltd.

AUDC

Apr. 30

Inphi Corp.

IPHI

Apr. 29

Qorvo, Inc.

QRVO

Apr. 29

Old Dominion Freight Line, Inc.

ODFL

Apr. 29

Keysight Technologies, Inc.

KEYS

Apr. 28

Dollar General Corp.

DG

Apr. 28

AngloGold Ashanti Ltd.

AU

Apr. 28

U.S. Steel Corp.

X

Apr. 28

Cadence Design Systems, Inc.

CDNS

Apr. 27

ServiceNow, Inc.

NOW

Apr. 27

Snap, Inc.

SNAP

Apr. 27

Centene Corp.

CNC

Apr. 27

Abbott Laboratories

ABT

Apr. 24

Five9, Inc.

FIVN

Apr. 24

Chewy, Inc.

CHWY

Apr. 24

Roku, Inc.

ROKU

Apr. 23

Tesla, Inc.

TSLA

Apr. 23

Shopify, Inc.

SHOP

Apr. 23

iShares Nasdaq Biotechnology ETF

IBB

Apr. 21

Teradyne, Inc.

TER

Apr. 20

Electronic Arts, Inc.

EA

Apr. 20

Verizon Communications, Inc.

VZ

Apr. 20

VanEck Vectors Semiconductor ETF

SMH

Apr. 17

Health Care Select Sector SPDR

XLV

Apr. 17

Coupa Software, Inc.

COUP

Apr. 17

Veeva Systems, Inc.

VEEV

Apr. 17

American Tower Corp.

AMT

Apr. 17

Okta, Inc.

OKTA

Apr. 16

Target Corp.

TGT

Apr. 16

Intel Corp.

INTC

Apr. 14

Netflix, Inc.

NFLX

Apr. 14

VanEck Vectors Gold Miners ETF

GDX

Apr. 14

Invesco QQQ Trust

QQQ

Apr. 14

SBA Communications Corp.

SBAC

Apr. 13

Akamai Technologies, Inc.

AKAM

Apr. 13

Citrix Systems, Inc.

CTXS

Apr. 6

Ciena Corp.

CIEN

Apr. 6

Seattle Genetics, Inc.

SGEN

Apr. 6

DocuSign, Inc.

DOCU

Apr. 3

Zscaler, Inc.

ZS

Apr. 3

Moderna, Inc.

MRNA

Apr. 3

RingCentral, Inc.

RNG

Mar. 30

Activision Blizzard, Inc.

ATVI

Mar. 30

Regeneron Pharmaceuticals, Inc.

REGN

Mar. 30

Apple, Inc.

AAPL

Mar. 27

Nvidia Corp.

NVDA

Mar. 27

Dexcom, Inc.

DXCM

Mar. 27

Amazon.com, Inc.

AMZN

Mar. 26

Stamps.com, Inc.

STMP

Mar. 26

Quidel Corp.

QDEL

Mar. 26

Karyopharm Therapeutics, Inc.

KPTI

Mar. 20

Domino’s Pizza, Inc.

DPZ

Mar. 20

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

* Click each symbol for current chart.

** Not necessarily well positioned, though a recovery attempt is intact.

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