Charting a bull-flag breakout, S&P 500 knifes toward record territory

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Technically speaking, the major U.S. benchmarks have taken flight mid-month, rising amid persistently bullish June price action.

Against this backdrop, the S&P 500 has knifed from a tight seven-session range – a bull flag – rising within striking distance of record territory.

As illustrated, the S&P had established a flag-like pattern, digesting the early-June spike atop the 50-day moving average. The index has ventured atop next resistance (2,912) early Tuesday.

Tactically, additional overhead (2,936) is followed by the S&P’s record close (2,945.83).

Similarly, the Dow Jones Industrial Average had flatlined, digesting a steep June rally.

Here again, the 50-day moving average, currently 25,994, generally underpinned the mid-month pullback.

The chart illustrates a bull flag – pinned to the early-June rally – laying the groundwork for this week’s follow-through.

Meanwhile, the Nasdaq Composite had flatlined slightly under major resistance.

Familiar overhead matches the March peak (7,850) and the 50-day moving average, currently 7,858. The Nasdaq has ventured firmly higher early Tuesday.

On further strength, the June peak (7,910) is followed by the more distant 8,000 mark.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq’s June price action remains bullish. The index has asserted a tight mid-month range – underpinned by gap support – laying the groundwork for this week’s follow-through, as detailed previously.

Looking elsewhere, the Dow Jones Industrial Average has sustained the June breakout.

Recall that support broadly spans from about 25,950 to 25,994, levels matching the April gap and the 50-day moving average.

To reiterate, the mid-month flag pattern – pinned to the steep trendline breakout – has positioned the Dow for this week’s follow-through.

Similarly, the S&P 500 has established a mid-month flag pattern.

Recall that last week’s low (2,874) effectively matched familiar support (2,873). Bullish price action.

The bigger picture

All told, the major U.S. benchmarks are acting well, rising amid optimism over pending China-U.S. trade progress as well as recently dovish central bank policy language. The Federal Reserve’s policy statement is due out mid-week.

Tactically, the prevailing flag-like patterns signal muted selling pressure, positioning the benchmark’s for this week’s follow-through.

Moving to the small-caps, the iShares Russell 2000 ETF has rallied less aggressively from the June low.

Still, a retest of the 200-day moving average (153.16) and 50-day moving average (154.14) is currently underway. An eventual close higher would strengthen the bull case.

Meanwhile, the SPDR S&P MidCap 400 remains stronger, sustaining a break atop the 200-day moving average.

To reiterate, additional overhead matches the 50-day moving average (349.20) and the June peak (350.95). The MDY has ventured atop this area Tuesday.

Looking elsewhere, the SPDR Trust S&P 500 remains incrementally stronger than the small- and mid-caps.

Consider that the sharp early-June rally was punctuated by a flat pullback fueled by decreased volume. The muted selling pressure is constructive, laying the groundwork for upside follow-through.

Placing a finer point on the S&P 500, its backdrop remains straightforward.

To start, recall that the mid-June peak (2,910.6) has registered slightly under next resistance (2,912), detailed previously.

The mid-month pullback from resistance has been orderly, underpinned by support (2,873) matching the 50-day moving average, currently 2,874.8. Bullish price action.

More immediately, Tuesday’s strong start places record territory within striking distance. The S&P’s record close (2,945.83) is closely followed by its absolute record peak (2,954.13).

Against this backdrop, Tuesday’s early breadth statistics have approached bullish extremes – NYSE advancing volume is declining volume by about a 6-to-1 margin – the earmarks of a healthy uptrend. Recall that the June rally originates from an unusually strong 8-to-1 up day. (Tuesday marks day 11 following that initial rally.)

Combine price action with the June internals and an eventual retest of record highs looks increasingly likely. The S&P’s pending response to resistance, combined with the response to the Federal Reserve’s mid-week policy statement, will likely add color.

See also: Charting a bullish technical tilt, S&P 500 scores decisive trendline breakout.

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 FAANG-related price action – Large-cap technology begins repair process

Drilling down further, bellwether large-cap technology names have started the process of repairing recent technical damage. Recall that Facebook, Amazon and Alphabet plunged to start June, pressured amid concerns over pending U.S. regulatory oversight.

In the process, the shares have reclaimed the breakdown point (174.00), an area closely matching trendline resistance.

As detailed previously, the 50-day moving average, currently 182.50, has defined Facebook’s recent trend, and the prevailing rally attempt is intact barring a violation. (Also see the June 12 review.)

Here again, the shares have reclaimed the breakdown point (1,823.75), an area roughly matching former trendline resistance.

Separately, consider that the 50-day moving average (1,861) has marked a bull-bear inflection point going back as far as the January and February lows. Tactically, the 50-day is closely followed by gap support (1,818.00) and Amazon’s recovery attempt is intact barring a violation. (Also see the June 10 review.)

Recall that the shares started June with a sharp gap lower, pressured amid a volume spike. The subsequent rally attempt has been fueled by decreased volume, and thus far capped by gap resistance (1,103.35), detailed previously.

Alphabet has ventured atop resistance early Tuesday, and a close higher would mark progress. On further strength, the 200-day moving average (1,130.70) is within striking distance.

To be sure, Alphabet is not exactly well positioned, based on today’s backdrop, though the process of repairing recent damage is underway.

Fundamentally, recently easing interest rates have pressured the U.S. dollar modestly, presenting a gold tailwind. As always, gold and dollar are inversely correlated.

Technically, the shares have knifed atop trendline resistance, rising to challenge 14-month highs. Selling pressure near the range top has been muted, improving the chances of eventual follow-through.

Tactically, near-term support (124.90) closely matches the March peak, and a breakout attempt is in play barring a violation.

Earlier this month, the group knifed atop trendline resistance, reaching two-month highs amid increased volume.

The ensuing pullback has been flat, fueled by decreased volume, positioning the group to build on the initial breakout. Tactically, the 200-day moving average is followed by the trendline, circa 90.20, and the group’s recovery attempt is intact barring a violation.

Finally, there’s always something to worry about, and the transports’ prevailing backdrop highlights a concern.

As an economically-sensitive sector, the group’s sluggishness – even amid recently pronounced crude-oil price weakness – raises a question mark.

Tactically, notable resistance matches the June peak (187.06) – as well as the 50- and 200-day moving averages – and a close higher would strengthen the bull case.

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.