Breadth divergence is a troubling sign for the stock market

S&P 500 vies for technical breakout

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CINCINNATI (MarketWatch) — Despite recent volatility, the major U.S. benchmarks are rattling the cage on uncharted territory.

Most notably, the S&P 500 Index is challenging its all-time high — S&P 1,985.59 — and a break from this area would confirm its primary uptrend. 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 is traversing its range.

The range top — the July peak of 1,985 — marks the S&P’s all-time high, and this week’s upturn positions the index for a potential breakout.

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

In its case, the blue-chip benchmark has maintained support at its former breakout point of 16,970, an area better illustrated on the daily chart.

And the Nasdaq Composite’s near-term view remains jagged, but constructive.

Recall that the index bottomed last week at 4,352, matching a significant technical floor at the July low.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has survived its second test of the breakout point — support at the July low — and its path of least resistance points firmly higher barring a violation of this area.

Similarly, the Dow Jones Industrial Average has maintained support at its former breakout point of 16,970.

Consider that last week’s “Russia-induced” low held at 16,966, and the Dow bottomed Monday at 16,974. Bullish price action.

And the S&P 500’s wider view rounds out the major benchmarks.

As detailed previously, the July lows now rest at 1,952 and 1,955, and this area marks increasingly significant support.

The bigger picture

Technically speaking, the major U.S. benchmarks have absorbed last week’s geopolitically-driven volatility.

In fact, the summer price action remains distinctly technical.

Returning to the Nasdaq, it’s nailed support at the July low of 4,351.

With this week’s upturn, two hurdles stand out:

  • Initial resistance at its two-week range top, around 4,450.

  • Resistance at the Nasdaq’s 14-year high of 4,485.93.

Similarly, the Dow Jones Industrial Average has maintained its former breakout point of 16,970.

Looking ahead, technical overhead falls out as follows:

  • Dow resistance at its all-time closing high of 17,138.

  • Resistance at the Dow’s absolute all-time high of 17,151.

And the S&P 500 Index faces the U.S. markets’ headline technical test. Specifically:

  • The S&P’s all-time closing high rests at 1,985.44.

  • The S&P’s absolute all-time highs holds at 1,985.59.

Against this backdrop, the S&P has established a well-defined two-week range. The range encompasses last week’s “Russia-induced” whipsaw as well as the markets’ response to the early second-quarter earnings reports. And technically, trading ranges are more frequently exited in the direction in which they were entered. In this case, that would point to an eventual break higher.

So all told, the bigger-picture technicals remain bullish. Each benchmark has maintained well-defined support, and remains within striking distance of less-charted territory.

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 Brazil

EWZ

$51.08

$50.20

New High

Drilling down further, the iShares MSCI Brazil ETF
US:EWZ
 is acting well technically. (Yield = 3.2%.)

As illustrated, the shares have knifed from a bullish cup and handle defined by the June and July lows.

Moreover, recent strength has been driven by a sustained volume increase, improving the chances of incremental follow-through. First support now rests at the breakout point, just above 50.

Company

Symbol

Mon Close

Support

Resistance

Schlumberger Limited

SLB

$113.04

$110.80

$116.00

Profiled March 28, Schlumberger Limited
US:SLB
 has returned 15.9% and remains well positioned.

The shares initially spiked four weeks ago, rising to all-time highs after management issued stronger-than-expected long-term profit guidance.

By comparison, the ensuing pullback has been orderly, placing the shares at a high risk/reward entry near the breakout point, and 5% under the July peak. Schlumberger is also well positioned on the monthly chart.

Company

Symbol

Mon Close

Support

Resistance

Newfield Exploration Co.

NFX

$44.48

$42.50

$44.60

Newfield Exploration Co.
US:NFX
 is a large-cap oil and gas name positioned to rise.

Late last week, the shares gapped sharply higher, rising on management’s upwardly revised full-year production outlook.

The subsequent selling pressure has been limited — punctuated by lighter volume — and its tight three-session range positions the shares for a potential breakout.

Company

Symbol

Mon Close

Support

Resistance

Nextstar Broadcasting Group, Inc.

NXST

$48.96

$48.00

$53.70

Nextstar Broadcasting Group, Inc.
US:NXST
 is a well positioned mid-cap name.

Technically speaking, the shares have recently rallied to six-month highs, rising after the U.S. Supreme Court ruled that online TV provider Aereo was illegal.

The July pullback has been comparably flat, placing the shares at an attractive entry near the breakout point.

Company

Symbol

Mon Close

Support

Resistance

Pixelworks, Inc.

PXLW

$9.14

$8.90

$9.40

Initially profiled April 8, Pixelworks, Inc.
US:PXLW
 has returned 65.8% and remains well positioned.

Earlier this month, the shares knifed sharply higher, rising on speculation that the company is working with Apple, Inc. to develop an upcoming TV.

Since then, it’s challenged resistance at the March peak, and this week’s upturn positions the shares for a potential breakout.

Company

Symbol

Mon Close

Support

Resistance

Endeavor Silver Corp.

EXK

$6.15

$5.70

$6.30

Endeavor Silver Corp.
US:EXK
 is a small-cap miner positioned to rise.

As illustrated, the shares are challenging well-defined resistance at 52-week highs.

Moreover, recent strength has been driven by a sustained volume increase, improving the chances of an eventual breakout. The shares are also well positioned on the weekly chart.

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

Embraer SA

ERJ

July 21

RF Micro Devices, Inc.

RFMD

July 21

Spirit Airlines, Inc.

SAVE

July 21

Amazon.com, Inc.

AMZN

July 18

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

Xilinx, Inc.

XLNX

July 17

United Parcel Service, Inc.

UPS

July 16

Noble Energy, Inc.

NBL

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

Rambus, Inc.

RMBS

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

iShares Silver Trust

SLV

July 11

Southern Copper Corp.

SCCO

July 11

Digital Realty Trust, Inc.

DLR

July 11

Weyerhaeuser Co.

WY

July 11

BioDelivery Sciences International

BDSI

July 11

Archer Daniels Midland Co.

ADM

July 10

Spansion, Inc.

CODE

July 10

Nuance Communications, Inc.

NUAN

July 10

Pan American Silver Corp.

PAAS

July 10

KLA-Tencor Corp.

KLAC

July 9

Agnico Eagle Mines

AEM

July 9

Nabors Industries, Ltd.

NBR

July 9

Greenbrier Companies, Inc.

GBX

July 9

Abraxas Petroleum Corp.

AXAS

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

Microsemi Corp.

MSCC

June 23

Aspen Technology, Inc.

AZPN

June 23

SPDR Gold Trust

GLD

June 20

Noble Energy, Inc.

NBL

June 20

SunPower Corp.

SPWR

June 20

Monsanto Co.

MON

June 20

Coca-Cola Co.

KO

June 19

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

Halcon Resources Corp.

HK

June 9

Amazon.com, Inc.

AMZN

June 6

Financial Select Sector SPDR

XLF

June 5

Applied Materials, Inc.

AMAT

June 4

Williams-Sonoma, Inc.

WSM

June 4

Intel Corp.

INTC

June 3

American Airlines Group, Inc.

AAL

June 3

iShares MSCI Taiwan ETF

EWT

June 2

Zebra Technologies Corp.

ZBRA

June 2

Dow Chemical Co.

DOW

May 30

United Microelectronics Corp.

UMC

May 30

Dillard’s, Inc.

DDS

May 28

Expedia, Inc.

EXPE

May 28

Sanchez Energy Corp.

SN

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

Kulicke & Soffa Industries, Inc.

KLIC

May 20

Pernix Therapeutics Holdings, Inc.

PTX

May 20

Humana, Inc.

HUM

May 19

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

Avago Technologies, Ltd.

AVGO

May 14

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

Centene Corp.

CNC

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

Advanced Semiconductor Engineering

ASX

Apr. 21

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

Televisa

TV

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

NXP Semiconductors NV

NXPI

Feb. 10

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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