Major U.S. benchmarks violate first support
Focus: Data storage, EMC, QLGC, WDC, STX, NITE, GFA, CME, ARO 09/01 01:50 PM
Editor's Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column, including 100 technical stock picks, every month, .
CINCINNATI (MarketWatch) -- Almost as if on cue, the U.S. markets have started September -- seasonally, the worst-performing month for stocks -- with a sharp downdraft.
And while a deeper pullback appears to be in order, the broader technical trends remain constructive as detailed below.
The S&P 500's hourly chart illustrates the past three weeks.
After breaking to the year's best levels, the S&P has pulled in this week.
Looking ahead, the 1,012 area -- matching the mid-August closing high -- marks a near-term inflection point, followed by a modest floor at 998.
Meanwhile, the Dow's near-term view is similar.
Including Tuesday's downturn, the benchmark has violated the 9,425 support, and its next minor floor holds at 9,325.
And the Nasdaq remains characteristically weaker on this near-term view.
In Monday's action, it gapped under support at 2,015, before observing that area as resistance.
On further weakness, next support holds at 1,993, matching last week's low, and is followed by another minor floor around 1,980.
Widening the view to six months adds color.
As the chart illustrates, the Nasdaq staged a false breakout last week, failing to follow through despite positive financial results from tech bellwether Dell and an upbeat revenue forecast from chip giant Intel.
Yet while near-term consolidation is now underway, the index remains within a longer-term uptrend: Both the 50-day and 200-day moving averages are upward sloping.
Moving to the Dow, its wider view points to longer-term support.
Specifically:
-- The January peak of 9,088.
-- The 50-day moving average, currently 8,950.
-- The June peak of 8,877.
Looking ahead, the 8,900-to-9,100 area should mark a significant floor, though a violation of this band would mark a "lower low," opening the path to a more severe pullback.
For its part, the S&P 500's backdrop generally mirrors the Dow's.
Its broader support points are detailed in the next section.
The bigger picture
September, it's been well documented, is the worst-performing month for stocks on a seasonal basis. The U.S. markets have started the month off with a sharp downdraft.
Against this backdrop, it's worth considering each benchmark's 20-day moving average, defining the near-term trend:
-- The Dow's 20-day moving average currently holds at 9,355.
-- The Nasdaq 20-day rests at 1,990.
-- The S&P 500's 20-day holds at 1,007.
With Tuesday's downturn, each benchmark has edged under its 20-day, and a close at current levels would flag a near-term trendshift.
Yet setting aside day-to-day fluctuations, the S&P's six-month view highlights intermediate-term support.
As the chart illustrates, notable floors fall out as follows:
-- The August low of 978.
-- The 50-day moving average, currently 965.
-- The June peak of 956.
Barring a violation of the 956-to-965 area, the S&P's broader uptrend is intact.
All told, the U.S. markets are pushing the envelope on a near-term trendshift that would open the way to a potential retest of the August low.
Yet trading conditions are thin this week, and without a sustained downturn accompanied by conviction -- that means volume -- the longer-term path of least resistance remains higher.
Tuesday's watch list
The charts below highlight names well positioned technically. These are intended as radar-screen names -- sectors or stocks positioned to move in the near term. For the original comments on the stocks below, check out .
Data-storage sector breaks out
Drilling down to sectors, the data-storage group is technically well positioned: QLogic Corp. (QLGC:$15.46,00$-0.35,00-2.21%) , Western Digital (WDC:$33.42,00$-0.86,00-2.51%) and EMC Corp (EMC:$15.71,00$-0.19,00-1.19%) .
Each broke decisively higher last week, clearing resistance at the August peak.
The breakout came on increased volume, confirming the group's uptrend, and a pullback toward first support would mark a high risk/reward entry.
Company SymbolMon CloseSupport Resistance
Seagate Technology STX$13.85$12.80$14.20
Initially profiled July 20, Seagate Technology (STX:$13.43,00$-0.42,00-3.03%) has returned 24.2% and remains well positioned.
As the chart illustrates, it's holding a steady six-month uptrend, spiking to new highs with the storage sector last week.
The breakout came on strong volume -- improving the chances of further upside -- and Seagate's (STX:$13.43,00$-0.42,00-3.03%) near-term outlook should remain higher barring a violation of first support around $12.80.
Company SymbolMon CloseSupport Resistance
Knight Capital GroupNITE$20.12$19.30$20.80
Knight Capital Group (NITE:$19.6899,$-0.4301,-2.14%) is a well-positioned mid-cap name.
Technically speaking, it spiked to two-year highs last month following a successful test of the 50-day moving average.
On the ensuing pullback, it's held the July peak as support, and Knight's near-term outlook should remain higher barring a violation of this area.
Company SymbolMon CloseSupport Resistance
Gafisa SAGFA$29.31$26.60$32.30
Initially profiled July 24, Brazilian-based homebuilder Gafisa SA has returned 18.6%.
In mid-August, it broke decisively to 11-month highs, clearing resistance at the July peak.
Though still extended on a near-term basis and due to consolidate, a pullback toward the breakout point would mark a high risk/reward entry.
Company SymbolMon CloseSupport Resistance
CME GroupCME$291.04$286.00$298.50
CME Group is a large-cap name coming to life.
Very simply, it's edged from a tight two-month trading range, also clearing its 50-day moving average this week.
Recent strength opens the way to a potential test of the late-June peak, and the risk/reward can be favorable from current levels with a stop at its former range top.
Company SymbolMon CloseSupport Resistance
Aeropostale ARO$39.15$38.20$41.70
Profiled last week, Aeropostale (ARO:$38.74,00$-0.41,00-1.05%) has since pulled in but remains well positioned.
As the chart illustrates, it recently cleared a four-month range top after posting strong second-quarter financial results.
By comparison, the ensuing pullback has come on lighter volume, placing the shares at a better entry near the breakout point. |
