Consider that the S&P 500 and Nasdaq Composite have effectively nailed major support early Tuesday — S&P 2,742 and Nasdaq 7,637. The initial rally from support is constructive, though these potentially consequential retests remain underway.
Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -0.40% hourly chart highlights the past two weeks.
As illustrated, the S&P has extended its pullback from three-month highs.
Its first notable support rests at the May peak (2,742), detailed repeatedly. Tuesday’s early session low (2,743) punctuates a successful initial retest.
Meanwhile, the Dow Jones Industrial Average DJIA, -1.15% has pulled in more aggressively.
In its case, notable support broadly spans from 24,719 to 24,786, levels matching the 2017 close and 2017 peak.
The Dow has ventured firmly lower early Tuesday, though as always, it’s the close that matters. On further weakness, gap support (25,542) is followed by the late-May low (25,247).
Against this backdrop, the Nasdaq Composite COMP, -0.28% remains the strongest major benchmark.
As illustrated, the index has pulled in modestly from the range top, digesting last week’s break to record territory.
Tactically, its first notable support matches the March peak (7,637). Tuesday’s early session low (7,635) punctuates a successful initial retest.
Combined, the Nasdaq and the S&P 500 have effectively nailed their first significant support early Tuesday.
Widening the view to six months, the Nasdaq is digesting the June break to uncharted territory.
Recall that the post-breakout closing low (7,635), established June 7, closely matched the breakout point (7,637), detailed repeatedly.
Tuesday’s early session low (7,635) has also matched support, though the retest remains underway.
On further weakness, a near-term floor (7,595) is followed by the June breakout point, circa 7,474.
Looking elsewhere, the Dow Jones Industrial Average has pulled in from three-month highs.
To reiterate, its first notable floor matches the 2017 peak (24,876). Last week’s low registered just 18 points above support.
On further weakness, the June low (24,542) is followed by the late-May “Italy-induced” low (24,247).
Beyond technical levels, the Dow’s prevailing backdrop remains constructive. The index is rising from a double bottom — defined by the March and May lows — and has established a series of “higher highs” and “higher lows.”
Meanwhile, the S&P 500 has nailed next resistance, and pulled in.
Last week’s close (2,779.7) matched the 2,780 mark, and the subsequent downturn preserves the S&P’s range top. To reiterate, its first notable support matches the May peak (2,742).
The bigger picture
Though U.S. stocks are firmly on the defensive early Tuesday, the market price action is more orderly than the headline numbers suggest.
As detailed above, the S&P 500 and Nasdaq Composite have effectively nailed major floors at Tuesday’s early low — S&P 2,742, and Nasdaq 7,637, respectively. The initial rally from support is constructive, though these potentially consequential retests remain underway.
Moving to the small-caps, the iShares Russell 2000 ETF IWM, +0.01% started the week with its latest record close.
Fundamentally, small-caps operate less globally, and more domestically, insulating the benchmark from cross currents elsewhere.
Tactically, near-term support (165.30) is closely followed by the May peak (164.39).
Meanwhile, the S&P MidCap 400 has pulled in from a less decisive break to record territory.
A retest of the breakout point (362.50) remains underway. Monday’s close (362.66) matched support, though the MDY is firmly on the defensive to start Tuesday.
Against this backdrop, the SPDR Trust S&P 500 SPY, +0.36% has pulled in from three-month highs.
Tactically, the 20-day moving average, currently 275.15, marks an inflection point. This is closely followed by the SPY’s breakout point (274.25), a level matching the May peak.
Placing a finer point on the S&P 500, its six-month backdrop remains bullish.
Recall that the initial June breakout registered as statistically unusual, encompassing three consecutive closes atop the 20-day volatility bands.
The subsequent flag pattern held tightly to the 2,780 mark — at least initially. Last week’s close (2,779.7) matched resistance.
More immediately, the S&P 500’s May peak (2,742) marks its first notable floor. The S&P has bottomed early Tuesday at 2,743 — matching support — though the retest remains underway.
Delving deeper, the S&P’s former range top (2,710) is closely followed by the ascending 50-day moving average, currently 2,708.
As always, it’s not just what the markets do, it’s how they do it, but generally speaking, the S&P 500’s intermediate-term bias points higher barring a violation of the 2,710 area.
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.
Charting a vulnerable global market backdrop
Drilling down further, several influential regions are tenuously positioned amid this week’s global market volatility spike. Quickly consider the following:
To start, the iShares China Large-Cap ETF FXI, –1.57% has pulled in to major support, pressured after a failed test of trendline resistance.
The FXI has ventured under the range bottom, circa 45.50, early Tuesday.
Put differently, the shares are traversing less-charted territory — illustrated on the three-year chart — and vulnerable to potentially material downside follow-through.
Tactically, a nearly immediate reversal to the range — atop the 45.50 area — would mark an early step toward stabilization. Conversely, the February low (44.60) marks a deeper inflection point, and is followed by more distant support fractionally under 42.00.
In a related move, the Shanghai Composite Index plunged as much as 5% intraday, reaching its lowest level, below the 3,000 mark, since 2016. Over 1,000 individual China-listed names plunged at least 10% intraday.
Similarly, the iShares MSCI Japan ETF EWJ, -1.06% has reached a major technical test.
Specifically, the shares have pulled in to the 200-day moving average, currently 59.67, from a failed test of trendline resistance.
The shares have violated the 200-day moving average early Tuesday — marking the first venture lower since July 2016 — and a close lower would inflict technical damage.
As always, the 200-day is a widely-tracked longer-term trending indicator. A posture lower generally signals a primary downtrend.
Against this backdrop, the iShares Europe ETF IEV, -0.84% is also technically vulnerable, pressured amid recently heightened political uncertainty.
As illustrated, the shares have plunged from a double top — defined by the April and May peaks — and subsequently failed a retest of the 50- and 200-day moving averages from underneath.
And here again, the shares have followed through lower early Tuesday, violating major support, circa 45.50.
Tactically, the IEV has reached less-charted territory, illustrated on the three-year chart, opening the path to potentially swift downside follow-through. A reversal atop the breakdown point (45.50) would places the brakes on bearish momentum.
Finally, the iShares MSCI Emerging Markets ETF EEM, -1.10% has already broken down technically.
In the process, the shares have reached nine-month lows, resolving a massive bearish descending triangle.
Tactically, a near-term downside target projects to the 43 area. Conversely, an eventual close atop the breakdown point (45.10) would stabilize the backdrop.
Charting a crude oil downtrend amid strengthening U.S. dollar
Looking elsewhere, pronounced cross currents across asset classes — detailed previously — remain in play. On balance, the volatility elsewhere has registered as inconsequential for U.S. stocks, though Tuesday’s potential damage, or lack thereof, is pending.
To start, the United States Oil Fund’s USO, -1.13% intermediate-term downtrend is intact. The fund tracks the price of West Texas Intermediate (WTI) light, sweet crude oil.
As illustrated, the USO has turned lower, pressured amid volatility ahead of OPEC’s Friday meeting in Vienna. Major producers Saudi Arabia and Russia are reportedly pushing to increase output.
Tactically, an eventual reversal atop the trendline, and more important gap resistance (13.93), would reassert the USO’s former uptrend.
Much more broadly, major support matches the April low (12.47), an area defining a former multi-year range top (12.45), illustrated on the four-year chart. The USO’s longer-term bias points higher barring a violation.
Amid the cross currents detailed, the U.S. dollar — profiled last week — continues to strengthen.
To reiterate, the Invesco U.S. Dollar Bullish ETF UUP, +0.28% is challenging nearly 52-week highs, its best level since June 26.
Fundamentally, the dollar spiked last week not due to the Federal Reserve’s policy language, but after the ECB’s unexpectedly dovish-leaning statement. More immediately, trade-related uncertainty has contributed to the prevailing breakout attempt.
An intermediate-term target projects to the 25.40 area on follow-through.
Returning full circle, China’s yuan has reached five-month lows this week, registering its biggest single-day downturn in about 18 months.