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Charting a bullish holding pattern, S&P 500 maintains 20-day average

By Michael Ashbaugh, MarketWatch

Focus: Europe asserts bull flag, Metals & Mining ETF digests decisive January breakout, IEV, XME, NOVA, EXAS, RS

Technically speaking, the major U.S. benchmarks have asserted a holding pattern, digesting a sharp early-month rally to record territory.

Recent range-bound price action signals still muted selling pressure -- in the wake of statistically unusual technical breakouts -- preserving a comfortably bullish intermediate-term bias.

Before detailing the U.S. markets' wider view, the S&P 500's hourly chart highlights the past two weeks.

As illustrated, the S&P has staged an orderly pullback from the range top.

The downturn has been underpinned by near-term support (3,764) as well as the 20-day moving average, currently 3,750. Last week's low (3,749) closely matched the 20-day.

On further weakness, firmer support rests in the 3,723-to-3,726 area.

Meanwhile, the Dow Jones Industrial Average has pulled in from a nominal record high, established late last week.

The downturn has been underpinned by a shaky, but successful, test of its range bottom (30,793).

Slightly more broadly, the Dow is traversing a relatively narrow eight-session range. The prevailing range is hinged to an early-month rally from major support (29,964), an area also detailed on the daily chart.

Against this backdrop, the Nasdaq Composite has maintained its first notable support.

The specific area matches the breakout point (12,973) -- also detailed on the daily chart below -- preserving a seven-session range near record highs. Constructive price action.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has asserted a January flag pattern underpinned by the breakout point (12,973). The index registered two successful retests of support last week.

Also recall that the 20-day moving average, currently 12,918, is rising toward support. The Nasdaq has not closed under the 20-day since Nov. 3.

Delving deeper, the former breakout point (12,607) underpinned the early-January whipsaw -- (the long red bar, also detailed on the hourly chart) -- and is followed by the 50-day moving average, currently 12,455.

The Nasdaq's backdrop supports a bullish intermediate-term bias barring a violation of these areas.

Looking elsewhere, the Dow Jones Industrial Average is digesting a technically more aggressive January spike.

As detailed repeatedly, the initial rally marked a two standard deviation breakout, encompassing three straight closes atop the 20-day Bollinger bands (link).

Tactically, the December gap (30,283) is followed by the 50-day moving average, currently 30,058, and the mid-November range top (29,964). A sustained posture atop these areas signals a bullish intermediate-term bias.

Similarly, the S&P 500 is digesting a decisive early-January breakout.

Recall that the 20-day moving average, currently 3,750, has effectively defined the recent trend. Last week's low (3,749.6) registered nearby.

The bigger picture

As detailed above, the major U.S. benchmarks are acting well technically.

On a headline basis, each big three benchmark has weathered last week's modest pullback, preserving a range-bound posture near record highs. (See the hourly charts.)

Moving to the small-caps, the iShares Russell 2000 ETF (IWM) has registered a modest pullback from record highs, though amid increased volume.

Recent price action punctuates an unusually strong 6.3% breakout to start the new year.

Similarly, the SPDR S&P MidCap 400 ETF (MDY) is off to a strong 2021 start.

Recall that the small- and mid-cap breakouts initially encompassed four closes atop the 20-day volatility bands across a five-session span (link) signalling statistically unusual bullish momentum.

Though still near-term extended, the decisive breaks to record territory improve the chances of longer-term follow-through.

Looking elsewhere, the SPDR Trust S&P 500 (SPY) is consolidating a less-decisive breakout.

Tactically, the 20-day moving average, currently 373.65, is followed by an inflection point matching the December gap, circa 371.10.

Placing a finer point on the S&P 500, the index has weathered a modest downturn from the range top.

Recall this was the lone big three U.S. benchmark not to register a record high last week.

Tactically, near-term support, circa 3,764, has underpinned the pullback. Delving deeper, the 3,723-to-3,726 area marks the S&P's first significant floor.

More broadly, the prevailing "expected" consolidation phase -- or sideways price action -- punctuates an unusually strong two standard deviation breakout.

The index continues to digest recent gains amid a comfortably bullish intermediate-term backdrop.

Tactically, the 20-day moving average, currently 3,750, is followed by a notable floor in the 3,723-to-3,726 area. The 20-day has underpinned the S&P's recent grinding-higher trend.

Delving deeper, the 50-day moving average, currently 3,674, is followed by the former breakout point (3,646), a level precisely matching the early-December gap and the mid-November range top.

Broadly speaking, the S&P 500's intermediate-term bias remains bullish barring a violation of these areas.

Also see: Charting a decisive 2021 breakout: U.S. benchmarks clear 20-day volatility bands (link).

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 (link).

Drilling down further, the iShares Europe ETF (IEV) is acting well technically. (Yield = 1.7%.)

The shares started the year with a breakout, knifing to nearly three-year highs, the best levels since February 2018.

By comparison, the ensuing pullback has been flat, positioning the shares to extend the uptrend.

Tactically, the breakout point (47.90) is followed by the 50-day moving average, currently 47.25, and the former range bottom (46.30). A sustained posture higher signals a bullish bias.

Initially profiled July 28, the SPDR S&P Metals & Mining ETF (XME) has returned 49.0% and remains well positioned.

Earlier this month, the group knifed to 18-month highs, rising from a tight December range.

The initial spike marked a bullish two standard deviation breakout, encompassing three straight closes atop the 20-day Bollinger bands (link). As always, consecutive closes atop the bands signal a near-term extended posture -- due a cooling-off period -- amid a firmly-bullish longer-term backdrop.

More immediately, the prevailing pullback has filled the early-January gap, placing the group 7.7% under the January peak. Deeper support matches the breakout point (33.80). The prevailing uptrend is firmly-intact barring a violation.

Moving to specific names, Sunnova Energy International, Inc. (NOVA) is a mid-cap manufacturer of residential solar and energy storage solutions.

The shares initially spiked two weeks ago, rising amid a volume spike after the Georgia Senate runoff elections.

The subsequent pullback has been fueled by decreased volume, placing the shares 21.5% under the January peak. Tactically, the breakout point (46.00) marks well-defined support. A sustained posture higher signals a comfortably bullish bias.

Initially profiled Nov. 2, Exact Sciences Corp. (EXAS) has returned 17.9% and remains well positioned.

Earlier this month, the shares knifed to record highs, rising after the company reported strong preliminary fourth-quarter results.

The subsequent flag pattern has been underpinned by the breakout point (141.90), positioning the shares to build on the initial straightline spike. An intermediate-term target projects to the 165 area on follow-through.

Finally, Reliance Steel & Aluminum Co. (RS) is a well positioned large-cap name. (Yield = 2.0%.)

The shares started the year with a breakout, gapping to all-time highs amid increased volume.

The subsequent pullback has been comparably flat, placing the shares 6.0% under the January peak. Tactically, gap support (126.40) is followed by the firmer breakout point (122.85).

More broadly, the shares are well positioned on the three-year chart, (link) reaching previously uncharted territory from a bullish V-shaped 2020 reversal.

Still well positioned

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01-19-21 1233ET

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