Technically speaking, the major U.S. benchmarks have staged a sharp August downdraft, selling off aggressively from recent record highs.
The downturn has inflicted broadly-based damage, raising the flag to a bearish intermediate-term trend shift, pending repairs.
Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, +0.79% hourly chart highlights the past two weeks.
As illustrated, the S&P has plunged from recent record highs.
The downturn has punctuated a violation of last-ditch support (2,912) an area that closely matched last week’s low (2,914).
Moreover, the S&P has concurrently violated its 50-day moving average, also consistent with an intermediate-term trend shift.
Similarly, the Dow Jones Industrial Average DJIA, +0.69% has staged an aggressive August downdraft.
The downturn has thus far been underpinned by the 200-day moving average, currently 25,556.
Conversely, the 25,950 area pivots to resistance, a level matching the April gap, better illustrated on the daily chart.
Against this backdrop, the Nasdaq Composite COMP, +0.98% has also plunged from recent record highs.
The downturn has thus far been underpinned by major support — the 7,670 area — better illustrated on the daily chart below.
Widening the view to six months adds perspective.
On this wider view, the Nasdaq has plunged as much as 668 points, or 8.0%, from the record close established July 26.
Recall that notable support matched the July gap (8,059). The Nasdaq’s violation marked a material “lower low” signaling an intermediate-term trend shift.
More immediately, the downturn has been underpinned by major support (7,670) a level matching the late-2018, mini-crash range top. This area corresponds with the S&P 2,817 support — also the S&P’s mini-crash range top — and the quality of the prevailing rally from major support will likely add color.
Looking elsewhere, the Dow Jones Industrial Average has fallen off a cliff.
In its case, the blue-chip benchmark has plunged as much as 1,836 points, or 6.7%, from the record close established July 15.
Tactically, the 200-day moving average, currently 25,556, has initially offered support.
Conversely, notable resistance (25,950) matches the April gap and the June breakout point. Tuesday’s early session high (25,946) has matched resistance and the retest remains underway.
Meanwhile, the S&P 500 has plunged as much as 204 points, or 6.7%, from the record close established July 26.
Tactically, the August low (2,822) has thus far registered slightly above the 2,817 support, a level defining the late-2018 mini-crash range top. This area corresponds with the Nasdaq 7,670 floor, and the quality of the prevailing rally from major support will likely add color.
The bigger picture
As detailed above, the major U.S. benchmarks have started August with a damaging downdraft, plunging aggressively from recent record highs.
The downturn has inflicted material damage, knifing straight through all kinds of potential support.
Moving to the small-caps, the iShares Russell 2000 ETF has gapped under its 200-day moving average, currently 151.12.
The downturn has been fueled by a sustained volume spike, punctuating a failed test of the range top. Bearish price action.
Meanwhile, the SPDR S&P MidCap 400 has also plunged from its range top amid increased volume.
A retest of the 200-day moving average, currently 340.70, remains underway. Delving slightly deeper, the former range bottom (337.30) remains an inflection point.
Combined, the August downdrafts have wrecked what seemed to be setting up as a healthy late-July rotational move toward the small- and mid-caps.
Looking elsewhere, the SPDR Trust S&P 500 SPY, +0.87% has also turned lower amid a volume spike.
In the process, the SPY has tagged two-month lows, knifing sharply under its breakout point and the 50-day moving average.
Major support violated amid strong volume and bearish internals
Returning to market breadth, downside momentum accelerated Monday amid market internals that registered bearish extremes.
Specifically, declining volume surpassed advancing volume by a greater than 10-to-1 margin on the NYSE and a nearly 6-to-1 margin on the Nasdaq. (The prior three sessions had registered as internally tame, on the order of 2-to-1 or 3-to-1 negative breadth, depending on the day.)
In a textbook world, two 9-to-1 down days — across about a seven session window — would reliably signal a material bearish trend shift. (Recall that the early-January rally originated from two 9-to-1 up days across a precisely seven-session window.)
Put differently, the clock is ticking on a potential second shoe to drop across the next week or so.
Against this backdrop, the S&P 500’s August downdraft has inflicted major damage.
On a headline basis, the S&P has violated its breakout point (2,952) as well as the familiar 2,912 support.
As detailed repeatedly, the 2,912 area marked a last-ditch floor as it applies to the S&P’s intermediate-term technical bias. Notably, the S&P concurrently violated its 50-day moving average, a widely-tracked intermediate-term trending indicator.
Conversely, initial resistance holds at 2,873, a level matching Tuesday’s early session high (2,873.6). The pending retest from underneath should be a useful bull-bear gauge.
Beyond technical levels, recall that August has marked the worst month seasonally for the S&P 500 and Dow industrials since 1987.
All told, the S&P 500’s backdrop supports a bearish intermediate-term bias pending repairs. The quality of the prevailing rally attempt from major support — the S&P 2,817 and Nasdaq 7,670 areas — will likely add color. A swift reversal back atop the S&P 2,912 area, which looks unlikely, would strengthen the bull case.
See also: Charting the S&P 500’s jagged July breakout attempt ahead of the Fed.
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 Shares ETF GLD, +0.77% has extended its breakout, rising amid an August safe-haven trade.
The upturn places the GLD at six-year highs, its best levels since June 2013. Amid the upturn, recent rallies have been fueled by volume spikes, signaling that bullish momentum is intact.
More broadly, gold is traversing less-charted territory, rising from a multi-year base illustrated on the 10-year chart. The mid-year breakout continues to set up as consequential, as detailed repeatedly.
Tactically, the breakout point pivots to support (136.50) and is followed by deeper floors around 134.90 and 132.30. Gold’s rally attempt is firmly intact barring a violation.
August downdraft inflicts U.S. sub-sector damage
Moving to U.S. sectors, the August downdraft has inflicted technical damage. Three groups exemplify the prevailing backdrop:
To start, the iShares Transportation Average ETF has reversed course, violating trendline support as well as the 50- and 200-day moving averages.
Tactically, the 185 area pivots to resistance, and a swift reversal higher would place the brakes on bearish momentum.
Meanwhile, the Financial Select Sector SPDR XLF, +0.55% has plunged amid a volume spike, violating major support (27.50) closely matching the 50-day moving average.
The downturn has thus far been underpinned by the marquee 200-day moving average, currently 26.45. The group has bottomed three cents higher.
Tactically, the pending rally attempt from the 200-day will likely add color. A swift reversal back atop the 27.50 area would place the group on firmer technical ground.
Combined, the transports and financials are traditional sector leaders, and the August downdraft has placed both groups on the defensive, pending repairs.
Looking elsewhere, the Health Care Select Sector SPDR’s XLV, +0.64% backdrop has also cracked technically.
Specifically, the group has violated trendline support amid a sustained volume increase.
Tactically, the 200-day moving average has marked an inflection point, currently 90.25, and a reversal higher would stabilize the group’s backdrop.
Beyond the U.S. — Charting global market damage
Perhaps not surprisingly, global market damage has also been inflicted amid the August cross currents. Three regions exemplify the backdrop:
To start, the iShares China Large-Cap ETF FXI, +0.78% has plunged to eight-month lows.
In the process, the shares are pressing major support — the 37.85-to-38.00 area (the 2018 and 2019 lows) — illustrated on the five-year chart. An eventual violation would open the path to less-charted territory, and potentially material downside follow-through.
Conversely, notable resistance matches the top of the gap (39.76) and the breakdown point (39.90). A reversal higher would mark a step toward stabilization.
Meanwhile, the iShares Europe ETF IEV, +0.23% has plunged to five-month lows. The downturn punctuates a violation of the 50-day moving average, an area that formerly offered support.
Here again the breakdown point (42.20) closely matches the top of the gap (42.13), and the pending retest from underneath should be a useful bull-bear gauge.
Finally, the iShares Japan ETF EWJ, +0.83% remains relatively resilient. The shares have maintained the range bottom, outpacing the other regions.
Still, the prevailing downdraft punctuates a strong-volume violation of the 50- and 200-day moving averages. Tactically, the breakdown point (54.00) closely matches the 200-day, and a swift reversal higher would neutralize the August downdraft.
On a related note, and returning full circle, the Japanese yen has staged a tandem breakout with gold, also rising amid an August flight to safety. As always, currency strength generally presents a headwind to the native market, in this case Japan.
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.
| Company | Symbol | Date Profiled |
| Glaukos Corp. | GKOS | Aug. 1 |
| D.R. Horton, Inc. | DHI | July 31 |
| eHealth, Inc. | EHTH | July 31 |
| Vulcan Materials Co. | VMC | July 31 |
| Teradyne, Inc. | TER | July 30 |
| Polaris Industries, Inc. | PII | July 30 |
| SSR Mining, Inc. | SSRM | July 30 |
| United Parcel Service, Inc. | UPS | July 29 |
| Abbott Laboratories | ABT | July 26 |
| Humana, Inc. | HUM | July 22 |
| International Business Machines Corp. | IBM | July 19 |
| DexCom, Inc. | DXCM | July 19 |
| Agnico Eagle Mines Ltd. | AEM | July 18 |
| Franco-Nevada Corp. | FNV | July 18 |
| Pan American Silver Corp. | PAAS | July 17 |
| Neurocrine Biosciences, Inc. | NBIX | July 17 |
| LivePerson, Inc. | LPSN | July 16 |
| Texas Instruments, Inc. | TXN | July 15 |
| Packaging Corp. of America | PKG | July 15 |
| J.B. Hunt Transport Services, Inc. | JBHT | July 15 |
| Delta Air Lines, Inc. | DAL | July 12 |
| Owens Corning | OC | July 11 |
| Sarepta Therapeutics, Inc. | SRPT | July 11 |
| Twitter, Inc. | TWTR | July 10 |
| Micron Technology, Inc. | MU | July 10 |
| Inphi Corp. | IPHI | July 8 |
| Teledoc Health, Inc. | TDOC | July 1 |
| Shake Shack, Inc. | SHAK | June 28 |
| FMC Corp. | FMC | June 27 |
| ArQule, Inc. | ARQL | June 27 |
| SunPower Corp. | SPWR | June 26 |
| Williams-Sonoma, Inc. | WSM | June 25 |
| Sunrun, Inc. | RUN | June 25 |
| Spotify Technology | SPOT | June 24 |
| HollyFrontier Corp. | HFC | June 24 |
| VanEck Vectors Gold Miners ETF | GDX | June 21 |
| iShares Silver Trust | SLV | June 20 |
| Home Depot, Inc. | HD | June 19 |
| Lululemon Athletica, Inc. | LULU | June 19 |
| SPDR Gold Shares ETF | GLD | June 18 |
| Synopsys, Inc. | SNPS | June 17 |
| Zillow Group, Inc. | ZG | June 17 |
| Verisk Analytics, Inc. | VRSK | June 17 |
| Medtronic plc | MDT | June 14 |
| Ross Stores, Inc. | ROST | June 14 |
| Kirkland Lake Gold Ltd. | KL | June 13 |
| Dunkin Brands Group, Inc. | DNKN | June 12 |
| Ciena Corp. | CIEN | June 11 |
| Wix.com Ltd. | WIX | June 10 |
| Ecolab, Inc. | ECL | June 10 |
| Catalent, Inc. | CTLT | June 7 |
| Coca-Cola Co. | KO | June 6 |
| Dollar General Corp. | DG | June 5 |
| Repligen Corp. | RGEN | June 5 |
| Avalara, Inc. | AVLR | May 23 |
| Copa Holdings, S.A. | CPA | May 21 |
| Atlassian Corp. | TEAM | May 16 |
| SolarEdge Technologies, Inc. | SEDG | May 16 |
| Roku, Inc. | ROKU | May 15 |
| Arena Pharmaceuticals, Inc. | ARNA | May 15 |
| Johnson Controls International | JCI | May 10 |
| Take-Two Interactive Software, Inc. | TTWO | May 2 |
| Jacobs Engineering Group, Inc. | JEC | May 2 |
| JetBlue Airways Corp. | JBLU | Apr. 30 |
| American Express Co. | AXP | Apr. 24 |
| Church & Dwight Co., Inc. | CHD | Mar. 29 |
| Consumer Staples Select Sector SPDR | XLP | Mar. 28 |
| Shopify, Inc. | SHOP | Mar. 27 |
| Kimberly-Clark Corp. | KMB | Mar. 15 |
| iShares U.S. Real Estate ETF | IYR | Mar. 13 |
| Air Products & Chemicals, Inc. | APD | Mar. 11 |
| Costco Wholesale Corp. | COST | Mar. 6 |
| Marvell Technology Group Ltd. | MRVL | Mar. 1 |
| Universal Display Corp. | OLED | Mar. 1 |
| Vulcan Materials Co. | VMC | Mar. 1 |
| Walmart, Inc. | WMT | Feb. 22 |
| Microsoft Corp. | MSFT | Feb. 22 |
| Motorola Solutions, Inc. | MSI | Feb. 15 |
| First Solar, Inc. | FSLR | Feb. 15 |
| Procter & Gamble Co. | PG | Feb. 8 |
| Exact Sciences Corp. | EXAS | Jan. 28 |
| Applied Materials, Inc. | AMAT | Jan. 25 |
| SBA Communications Corp. | SBAC | Jan. 24 |
| Paycom Software, Inc. | PAYC | Jan. 23 |
| Advanced Micro Devices, Inc. | AMD | Jan. 22 |
| Coupa Software, Inc. | COUP | Jan. 16 |
| Veeva Systems, Inc. | VEEV | Jan. 16 |
| Okta, Inc. | OKTA | Jan. 9 |
| Alteryx, Inc. | AYX | Jan. 8 |
| IAC/InterActivecorp | IAC | Jan. 7 |
| Starbucks Corp. | SBUX | Nov. 5 |
| American Tower Corp. | AMT | Nov. 5 |
| Utilities Select Sector SPDR | XLU | Oct. 25 |
| McDonald’s Corp. | MCD | Oct. 24 |
| Yum! Brands, Inc. | YUM | Oct. 18 |