Charting a bearish technical tilt, S&P 500 digests damaging market downdraft
Focus: Dow industrials vie to reclaim major resistance
Technically speaking, the major U.S. benchmarks are vying to stabilize in the wake of a damaging market downdraft.
Against this backdrop, the S&P 500 remains capped by important resistance — the 5,750-to-5,775 area — levels defining the longer-term market bias. The charts below add color:
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Before detailing the U.S. markets’ wider view, the S&P 500’s hourly chart highlights the past four weeks.
As illustrated, the S&P 500 is vying to rally from six-month lows.
Against this backdrop, the 200-day moving average, currently 5,748, is followed by the breakdown point (5,775). This relatively narrow band marks major resistance.
Tactically, the pending retest of this area is worth tracking. The initial retest would be expected to draw selling pressure based on today’s backdrop.
Meanwhile, the Dow Jones Industrial Average has reached a key technical test.
Specifically, the index is challenging its 200-day moving average, currently 42,025. As always, the 200-day moving average is a widely-tracked longer-term trending indicator. (Also see the daily chart.)
Against this backdrop, the Nasdaq Composite is also vying to stabilize.
As illustrated, the index has broken its one-month downtrend, and observed the trendline as support. Bearish momentum has been stemmed for the moment.
Still, the index remains capped by near-term resistance (17,950) and the more important 200-day moving average, currently 18,435. The pending response to this area should be a useful bull-bear gauge.
Widening the view to six months adds perspective.
On this wider view, the Nasdaq is digesting an aggressive plunge to six-month lows. The downturn punctuates a double top defined by the December and February peaks.
More immediately, the prevailing rally attempt has been flattish, amid a newly-established plateau.
Tactically, near-term resistance (17,950) is followed by the more distant 200-day moving average, currently 18,435. The Nasdaq’s longer-term path of least resistance points lower pending a rally atop these areas.
Looking elsewhere, the Dow Jones Industrial Average is also rising in the wake of a damaging downdraft.
As illustrated, the recent downturn punctuated a sizeable double top — the M formation — defined by the December and January peaks.
Against this backdrop, three technical levels — detailed previously — remain in play:
The 200-day moving average, currently 42,025.
The January low (41,845).
Former support around 41,760. (Six-month range bottom.)
Combined, the 41,760-to-42,025 area marks a bull-bear inflection point. Sustained follow-through atop this area would place the blue-chip benchmark on firmer technical ground.
Meanwhile, the S&P 500 is digesting a plunge from its recent all-time high.
Against this backdrop, the 200-day moving average, currently 5,748, and the breakdown point (5,775) remain important overhead inflection points. (Also see the hourly chart.)
The bigger picture
As detailed above, the major U.S. benchmarks are vying to stabilize in the wake of a damaging market downdraft. From top to bottom:
The Dow industrials had pulled in as much as 4,412 points, or 9.8%, from the record high established late last year.
The Nasdaq Composite had plunged 2,966 points, or 14.7%, from its corresponding record high.
The S&P 500 had dropped 643 points, or 10.5%, from its record high established just one month ago.
Amid the downturn, each benchmark has violated its 200-day moving average an important longer-term trending indicator.
Moving to the small-caps, the iShares Russell 2000 ETF (IWM) is digesting a downdraft to seven-month lows.
The prevailing rally attempt has been comparably flat, and fueled by decreased volume. Bearish price action.
Also notice the death cross — or bearish 50-day/200-day moving average crossover — an event that has signaled as this is written. Though frequently a lagging indicator, the crossover signals that the intermediate-term downtrend has overtaken the longer-term trend.
Tactically, the breakdown point, circa 214, pivots to resistance and is followed by the major moving averages. An eventual rally atop these areas would place the small-cap benchmark on firmer technical ground.
Similarly, the SPDR S&P MidCap 400 ETF (MDY) is digesting a plunge to seven-month lows.
Here again, the prevailing rally attempt has been comparably flat — at least so far — and fueled by decreased volume.
Tactically, the breakdown point (560.90) pivots to resistance, and is followed by the 200-day moving average, currently 566.10. A reversal atop these areas would mark technical progress.
Returning to the S&P 500, this will likely be the most useful benchmark for gauging the broad-market outlook.
As illustrated, the index has plunged aggresively from record highs, punctuating a double top defined by the December and February peaks.
Amid the downturn, the S&P has violated several key technical levels, in most cases on the first approach. That’s bearish.
Against this backdrop, two widely-tracked levels remain in play:
The 200-day moving average, currently 5,748.
The breakdown point (5,775), a level formerly defining the post-election low.
Combined, the cross section of these areas — the 5,748-to-5,775 area — remains an important bull-bear fulcrum. (Also see the March 7 review.)
An eventual rally atop this area would signal waning bearish momentum, and a bullish-leaning longer-term bias.
Conversely, a sustained posture under this area — the 5,775 inflection point — signals a bearish longer-term bias.
As always, it’s not just what the markets do, it’s how they do it. In the current case, the recent market downdraft has inflicted broadly-based technical damage.
Against this backdrop, the S&P 500’s longer-term bias remains bearish pending a sustained rally back atop its breakdown point (5,775).
Also see March 7: Charting a bull-bear battle, S&P 500 challenges 200-day average.