Breadth divergence is a troubling sign for the stock market

Charting the approach of S&P 2,000

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CINCINNATI (MarketWatch) — The S&P 500 Index continues to grind slowly, but steadily, toward the headline 2,000 mark.

Against this backdrop, the U.S. markets’ bigger-picture technicals continue to support the bull case. The charts below add color:

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 pulled back to its range from all-time highs.

Initial support now holds at 1,967 (this week’s low) and is followed by a more important floor at the July low of 1,952.

Meanwhile, the Dow industrials’ near-term backdrop is weaker.

The index briefly whipsawed under notable support before reversing to its range by Monday’s close.

Looking ahead, the 16,970 area remains an inflection point, and is followed by resistance spanning from 17,133 (last week’s high) to the Dow’s record peak of 17,151.

And the Nasdaq Composite has also pulled in from recent highs.

In its case, the 4,450 area marks an inflection point, and is followed by significant resistance at the July peak of 4,485.

Widening the view to six months adds perspective.

On this wider view, two technical levels stand out:

  • Nasdaq resistance at the July peak of 4,485.93. The index topped last week at 4,485.50.

  • Support at the July low of 4,351.

The Nasdaq’s 50-day moving average currently rests at 4,347 — matching support at the July low — and its path of least resistance points higher barring a violation of this area.

Moving to the Dow Jones Industrial Average, its six-month backdrop remains bullish.

Consider that its 50-day moving average currently rests at 16,867, and the Dow rallied from this area Monday.

The blue-chip benchmark hasn’t notched three consecutive closes under the 50-day since February, and its path of least resistance points higher barring a violation of this area.

Similarly, the S&P 500’s wider view remains constructive.

As illustrated, the index topped last week at 1,991 — marking an all-time high — and the immediate pullback from record territory has been shallow.

The bigger picture

As detailed above, the U.S. benchmarks’ price action remains characteristically sluggish, but largely constructive.

Still, to the extent there’s a market headwind, the chart below adds color:

Consider that the iShares Russell 2000 ETF
US:IWM,
a small-cap market gauge, continues to lag behind its larger-cap counterparts.

In fact, the Russell 2000 violated its major moving averages earlier this month, and has subsequently observed the breakdown point as resistance.

This is bearish price action, and viewed in isolation, the small-caps’ path of least resistance technically points lower.

But scaling up in size, the SPDR S&P MidCap 400’s
US:MDY
 backdrop is stronger.

In its case, the mid-cap benchmark has drawn buyers at its breakout point, a level currently matching the 50-day moving average. Separately, the MDY’s six-month trendline is rising to meet support, and the group’s path of least resistance points higher barring a violation of this area.

And returning to the more widely-tracked S&P 500, its six-month backdrop is firmly bullish.

As detailed previously, significant support rests at the July low of 1,952, a level matching the 50-day moving average, currently 1,950.

Notice that its 50-day has marked a useful trending indicator since April, and the S&P’s path of least resistance technically points higher barring a violation of this area. Looking ahead, the S&P’s next technical test rests at the 2,000 mark, and its eventual response to this area should be a useful bull-bear gauge.

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.

ETF

Symbol

Mon Close

Support

Resistance

iShares MSCI Emerging Markets

EEM

$45.09

$44.60

New High

Drilling down further, the iShares MSCI Emerging Markets ETF
US:EEM
 is acting well technically. (Yield = 1.6%.)

As illustrated, the shares have established a steady six-month uptrend that closely tracks the 50-day moving average.

The trend is punctuated by last week’s gap to 52-week highs, and its narrow one-week range points to limited selling pressure, positioning the shares to extend recent gains.

Company

Symbol

Mon Close

Support

Resistance

Apple, Inc.

AAPL

$99.02

$97.10

New High

Initially profiled April 24, Apple, Inc.
US:AAPL
  has returned 22% and remains well positioned.

Late last week, the shares staged a strong-volume rally, rising after the company reported solid third-quarter results.

Since then, it’s extended to 52-week highs, placing Apple within striking distance of its all-time high of $100.72 established September 2012.

From current levels, initial support holds at the breakout point, and is followed by a firmer floor at the cross section of the July low and the 50-day moving average.

Company

Symbol

Mon Close

Support

Resistance

EMC Corp.

EMC

$29.67

$28.20

New High

EMC Corp.
US:EMC
 is a large-cap data storage name coming to life.

Earlier this month, the shares knifed to two-year highs, rising after activist investor Elliott Management Corp. reported a $1 billion stake in the company along with plans to encourage a breakup of EMC.

Though near-term extended, its strong-volume spike is longer-term bullish, and a pullback toward the breakout point would offer an attractive entry. EMC is also well positioned on the monthly chart.

Company

Symbol

Mon Close

Support

Resistance

Scripps Networks Interactive, Inc.

SNI

$83.40

$82.40

$86.60

Scripps Networks Interactive, Inc.
US:SNI
 is a well positioned large-cap name.

As illustrated, the shares have recently knifed from a bullish cup and handle, rising to six-month highs.

By comparison, the ensuing pullback has been orderly — driven by lighter volume — placing the shares at an attractive entry near the breakout point, and 3.7% under the July peak.

Company

Symbol

Mon Close

Support

Resistance

NetEase, Inc.

NTES

$85.89

$82.40

New High

Initially profiled June 18, NetEase, Inc.
US:NTES
 has returned 12.6% and remains well positioned. (Yield = 1.7%.)

Earlier this month, the shares knifed from the 50-day moving average, rising to all-time highs.

It’s subsequently established a bullish flag — defined by the breakout point — and its narrow one-week range positions the shares to extend their gains.

Company

Symbol

Mon Close

Support

Resistance

Air Products & Chemicals, Inc.

APD

$136.32

$134.70

$136.80

Air Products & Chemicals, Inc.
US:APD
 is a well positioned large-cap name. (Yield = 2.4%.)

Technically speaking, the shares have recently rallied to record territory, rising after the company’s strong third-quarter results.

The ensuing pullback has been flat, punctuated by lighter volume, positioning the shares to build on last week’s spike. The risk/reward can be favorable from current levels with a stop at the breakout point.

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

iShares MSCI Hong Kong ETF

EWH

July 28

Ctrip.com International

CTRP

July 28

Qihoo 360 Technology Co.

QIHU

July 28

E-Commerce China Dangdang, Inc.

DANG

July 28

Facebook, Inc.

FB

July 25

Skyworks Solutions, Inc.

SWKS

July 25

America Movil

AMX

July 25

Lithia Motors, Inc.

LAD

July 25

iShares India 50

INDY

July 24

Target Corp.

TGT

July 24

Horsehead Holding Corp.

ZINC

July 24

SouFun Holdings, Ltd.

SFUN

July 24

iShares MSCI Canada ETF

EWC

July 23

Vertex Pharmaceuticals, Inc.

VRTX

July 23

OmniVision Technologies, Inc.

OVTI

July 23

HCA Holdings, Inc.

HCA

July 23

TRW Automotive Holdings Corp.

TRW

July 23

iShares MSCI Brazil ETF

EWZ

July 22

Newfield Exploration Co.

NFX

July 22

Schlumberger Limited

SLB

July 22

Endeavor Silver Corp.

EXK

July 22

Nextstar Broadcasting Group, Inc.

NXST

July 22

Embraer SA

ERJ

July 21

RF Micro Devices, Inc.

RFMD

July 21

Spirit Airlines, Inc.

SAVE

July 21

Sinclair Broadcast Group, Inc.

SBGI

July 18

VCA, Inc.

WOOF

July 18

Stillwater Mining Co.

SWC

July 18

InvenSense, Inc.

INVN

July 17

Freeport McMoRan Copper & Gold

FCX

July 17

Pebrobras

PBR

July 17

United Parcel Service, Inc.

UPS

July 16

Fiserv, Inc.

FISV

July 16

Bank of New York Mellon Corp.

BK

July 16

Discover Financial Services

DFS

July 16

FMC Technologies, Inc.

FTI

July 15

eBay Inc.

EBAY

July 15

Glu Mobile, Inc.

GLUU

July 15

Western Digital Corp.

WDC

July 14

Pixelworks, Inc.

PXLW

July 14

XL Group, plc

XL

July 14

Companhia Siderurgica Nacional

SID

July 14

Southern Copper Corp.

SCCO

July 11

Digital Realty Trust, Inc.

DLR

July 11

BioDelivery Sciences International

BDSI

July 11

Archer Daniels Midland Co.

ADM

July 10

Nuance Communications, Inc.

NUAN

July 10

Pan American Silver Corp.

PAAS

July 10

Agnico Eagle Mines

AEM

July 9

Nabors Industries, Ltd.

NBR

July 9

Market Vectors Semiconductor ETF

SMH

July 8

International Business Machines

IBM

July 8

Gilead Sciences, Inc.

GILD

July 8

Bitauto Holdings Limited

BITA

July 8

Toyota Motor Corp.

TM

July 7

Expedia, Inc.

EXPE

July 7

Kodiak Oil & Gas Corp.

KOG

July 7

Baidu, Inc.

BIDU

July 2

El Paso Pipeline Partners, L.P.

EPB

July 2

Celgene Corp.

CELG

July 1

Royal Gold, Inc.

RGLD

July 1

Freeport-McMoRan Copper & Gold, Inc.

FCX

June 30

Cheniere Energy, Inc.

LNG

June 30

Microsoft Corp.

MSFT

June 30

iShares MSCI Japan ETF

EWJ

June 27

SolarCity Corp.

SCTY

June 27

Sempra Energy

SRE

June 27

Akorn, Inc.

AKRX

June 27

Health Care Select Sector SPDR

XLV

June 26

National Oilwell Varco, Inc.

NOV

June 26

FedEx Corp.

FDX

June 26

Eagle Materials, Inc.

EXP

June 26

AK Steel Holding Corp.

AKS

June 26

Kroger Co.

KR

June 25

Cirrus Logic, Inc.

CRUS

June 25

Tesla Motors, Inc.

TSLA

June 24

Eaton Corp.

ETN

June 24

Illumina, Inc.

ILMN

June 23

Salix Pharmaceuticals, Ltd.

SLXP

June 23

SunPower Corp.

SPWR

June 20

AutoDesk, Inc.

ADSK

June 19

Super Micro Computer, Inc.

SMCI

June 18

NetEase, Inc.

NTES

June 18

Jabil Circuit, Inc.

JBL

June 18

Green Plains, Inc.

GPRE

June 17

Chevron Corp.

CVX

June 17

Weatherford International, Ltd.

WFT

June 16

Health Net, Inc.

HNT

June 13

Ctrip.com International, Ltd.

CTRP

June 11

iShares MSCI Emerging Markets ETF

EEM

June 10

Joy Global, Inc.

JOY

June 10

CSX Corp.

CSX

June 9

Financial Select Sector SPDR

XLF

June 5

Williams-Sonoma, Inc.

WSM

June 4

Intel Corp.

INTC

June 3

iShares MSCI Taiwan ETF

EWT

June 2

Zebra Technologies Corp.

ZBRA

June 2

Dow Chemical Co.

DOW

May 30

Dillard’s, Inc.

DDS

May 28

Expedia, Inc.

EXPE

May 28

Consumer Discretionary Select Sector SPDR

XLY

May 27

Nordstrom, Inc.

JWN

May 27

Google, Inc.

GOOGL

May 21

SBA Communications Corp.

SBAC

May 21

Cisco Systems, Inc.

CSCO

May 20

Arris Group, Inc.

ARRS

May 19

Union Pacific Corp.

UNP

May 19

Vipshop Holdings Limited

VIPS

May 15

Verizon Communications, Inc.

VZ

May 15

HDFC Bank Ltd.

HDB

May 15

Technology Select Sector SPDR

XLK

May 13

Devon Energy Corp.

DVN

May 13

iShares India 50 ETF

INDY

May 12

Lam Research Corp.

LRCX

May 12

Anadarko Petroleum Corp.

APC

May 12

Exxon Mobil Corp.

XOM

May 7

Fiserv, Inc.

FISV

May 7

Level 3 Communications, Inc.

LVLT

May 6

Canadian Pacific Railway, Ltd.

CP

May 5

American Tower Corp.

AMT

May 5

3M Co.

MMM

May 2

Canadian National Railway Co.

CNI

May 1

Suncor Energy, Inc.

SU

May 1

Pepsico, Inc.

PEP

Apr. 29

ConocoPhillips

COP

Apr. 28

Greenbrier Companies, Inc.

GBX

Apr. 28

Cirrus Logic, Inc.

CRUS

Apr. 28

Skyworks Solutions, Inc.

SWKS

Apr. 25

Apple, Inc.

AAPL

Apr. 24

iShares Nasdaq Biotechnology ETF

IBB

Apr. 23

iShares Transportation Average ETF

IYT

Apr. 22

Consumer Staples Select Sector SPDR

XLP

Apr. 17

Oasis Petroleum, Inc.

OAS

Apr. 17

Patterson-UTI Energy, Inc.

PTEN

Apr. 16

EOG Resources, Inc.

EOG

Apr. 16

iShares MSCI Brazil ETF

EWZ

Apr. 15

Market Vectors Oil Services ETF

OIH

Apr. 9

FMC Technologies, Inc.

FTI

Apr. 9

Pixelworks, Inc.

PXLW

Apr. 8

Intel Corp.

INTC

Apr. 4

Concho Resources, Inc.

CXO

Apr. 3

Baker Hughes, Inc.

BHI

Apr. 3

Alcoa, Inc.

AA

Apr. 3

iShares MSCI Emerging Markets ETF

EEM

Apr. 2

Energy Select Sector SPDR

XLE

Mar. 31

Whiting Petroleum Corp.

WLL

Mar. 31

Continental Resources, Inc.

CLR

Mar. 31

Golar LNG, Ltd.

GLNG

Mar. 31

Schlumberger, Ltd.

SLB

Mar. 28

WellPoint, Inc.

WLP

Mar. 27

Microsoft Corp.

MSFT

Mar. 25

iShares U.S. Telecommunications ETF

IYZ

Mar. 24

Zillow, Inc.

Z

Mar. 24

U.S. Silica Holdings, Inc.

SLCA

Mar. 19

Cimarex Energy Co.

XEC

Mar. 19

Industrial Select Sector SPDR

XLI

Mar. 10

iShares Transportation Average

IYT

Mar. 7

OmniVision Technologies, Inc.

OVTI

Mar. 7

iShares U.S. Real Estate ETF

IYR

Mar. 5

Consumer Staples Select Sector SPDR

XLP

Mar. 3

Materials Select Sector SPDR

XLB

Feb. 28

Utilities Select Sector SPDR

XLU

Feb. 24

Diamondback Energy, Inc.

FANG

Feb. 19

Market Vectors Semiconductor ETF

SMH

Feb. 18

Magna International, Inc.

MGA

Jan. 21

Energy Transfer Equity, L.P.

ETE

Dec. 9

Hewlett-Packard Co.

HPQ

Dec. 5

Southwest Airlines Co.

LUV

Oct. 10

PolyOne Corp.

POL

Oct. 1

Vipshop Holdings Limited

VIPS

Sept. 3

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