S&P 500’s dead-cat bounce remains underway
By Michael Ashbaugh
Published: Jan 26, 2016 12:21 p.m. ET
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Focus: Gold sustains a breakout, GLD, QQQ, XLF, IYT
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The U.S. markets’ recovery attempt remains underway with Tuesday’s firmly higher start.
Still, the January bounce remains technically lackluster — as measured by volume and breadth — and the rally attempt’s sustainability remains an open question.
Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +1.41% hourly chart highlights the past two weeks.
As illustrated, the S&P rallied from 23-month lows, thus far stalling near the 1,900 mark, matching its first notable resistance.
On further strength, the S&P’s 10% correction mark holds around 1,920 (not illustrated) and is followed by significant overhead at 1,950.
Meanwhile, the Dow Jones Industrial Average DJIA, +1.78% has staged a lukewarm rally from the January low.
From current levels, the 15,980 area remains an inflection point, better illustrated on the daily chart, and is followed by resistance at last week’s high of 16,172.
More broadly, the Dow’s first significant overhead rests just under the 16,600 mark.
And the Nasdaq Composite’s COMP, +1.09% near-term backdrop is slightly stronger.
Consider that its breakdown point rests at 4,517 — better illustrated below — and the index closed Monday just one point higher.
Looking ahead, gap resistance rests at 4,540, and is followed by last week’s high, just above 4,590.
On further strength, the Nasdaq’s next significant resistance rests at its two-week range top of 4,714.
Widening the view to six months adds perspective.
On this wider view, the index has reclaimed its breakdown point — Nasdaq 4,517 — an area that pivots to support.
It’s traversing less-charted territory, capped by notable overhead slightly above the 4,700 mark.
Similarly, the Dow Jones Industrial Average has whipsawed from the low.
As detailed previously, the 15,980 area remains an inflection point, and is followed by last week’s high, around 16,170.
More broadly, the January breakdown has inflicted major damage, and an extended basing period would be expected before the next durable leg higher. The Dow’s first notable overhead rests just under the 16,600 mark, better illustrated on the hourly chart.
And the S&P 500 has staged a shaky, but thus far successful, test of the August low.
Consider that last week’s closing low held at 1,859 — just eight points lower — and the S&P subsequently reversed respectably.
The bigger picture
The U.S. markets’ recovery attempt remains underway with Tuesday’s firmly higher start.
Still, the January bounce has been technically unimpressive — at least thus far — and the rally attempt’s sustainability remains an open question.
Moving to the small-caps, the iShares Russell 2000 ETF has rallied from 30-month lows.
Still, the initial reversal has been flat, fueled by decreased volume. First resistance rests at last week’s high, around 101.60, and is followed by the October 2014 low, just above 103.50.
A close higher would mark technical progress, opening the path to the small-cap benchmark’s breakdown point.
Similarly, the SPDR S&P MidCap 400 has staged a flattish, light-volume lift from the low.
Near-term resistance holds around 234.50, and a close higher would extend the mid-cap benchmark’s rally attempt.
More broadly, consider that the MDY is teetering on its 200-week moving average, while the IWM has violated its corresponding 200-week moving average. Each benchmark’s last sustained posture under these trending indicators concluded in September 2010.
Meanwhile, the SPDR Trust S&P 500 SPY, -0.46% has rallied from 23-month lows.
Here again, its reversal has been comparably flat versus the initial breakdown, punctuated by decreased volume.
Separately, consider that resistance rests at 190.73 (the Sept.1 low), and the SPY topped last week just three cents higher. This area remains the immediate hurdle.
And returning to the S&P 500’s three-year view highlights a headline issue. Each bar on the chart above represents one week.
Recall that major support spans from the August low of 1,867, to its former weekly closing low of 1,886.
The S&P closed Monday at 1,877 — within the support band — and broadly speaking, this area defines an important bull-bear battleground.
Against this backdrop, a corrective bounce is underway, though it continues to lack quality as measured by volume and breadth. Sustainability, and meaningful upside follow-through, remain an open question.
Beyond corrective bounces, the S&P 500’s longer-term bias supports a firmly bearish view pending technical repairs. An eventual rally atop the 1,950 resistance, and more distant overhead spanning from 1,981 to 1,993, would mark technical progress.
Looking ahead, the Federal Reserve’s next policy directive is due out Wednesday, and the markets’ response should add color to the backdrop.
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 SPDR Gold Trust GLD, +1.14% is acting well technically.
Consider that gold started the year with a breakout, knifing atop well-defined resistance and the 50-day moving average.
It’s subsequently sustained its gains, drawing buyers near first support. The GLD’s breakout point rests at 104, and its technical bias supports a bullish view barring a violation.
Meanwhile, the PowerShares QQQ ETF QQQ, -0.57% remains a source of relative strength. The group has maintained its range bottom, an area matching the September low.
Still, its violation of the 200-day moving average was fueled by a sustained volume spike, while the ensuing rally attempt has been flat, driven by decreased volume. The QQQ’s technical bias is currently neutral to bearish-leaning, and the shares remain vulnerable to an incremental leg lower.
Consider that its breakdown point closely matches the major moving averages, and a close higher would strengthen the bull case.
Looking elsewhere, the Financial Select Sector SPDR XLF, -0.24% has broken down technically.
And notably, the XLF notched a 23-month closing low on Monday, its worst since February 2014.
More plainly, the initial rally attempt has not only been flat, the group has extended its downturn on a closing basis. Significant resistance rests at its breakdown point (22.05), and a close higher would mark an early step toward stabilization.
Perhaps not surprisingly, the transports have paced the broad-market downdraft.
As illustrated, the iShares Transportation Average ETF IYT, +2.38% has plunged to its worst levels since October 2013.
The group’s breakdown also stands out on the weekly chart, and though due a corrective bounce, its longer-term bias points lower. Consider that the transports’ persistent weakness — even amid crude oil’s pronounced slide — supports a bearish broad-market view.
Modest resistance rests at 123.30, and a close higher would mark near-term progress.
