Technical Breakouts in Key US Equities

September tends to be a volatile month. We may be experiencing this seasonal phenomenon once again. Some believe as vacations come to an end and kids and parents go back to school and to work, the market actions during the early parts of September may be a good proxy for how the market trades into the end of the month and into the reminder of the year. We have several interesting technical developments that have occurred on 9/5/19 that may influence the outcome of the financial markets over the near-to-medium term. Also don't forget the end of the third quarter mutual fund portfolio restructuring is just around the corner in the next few weeks. Next month on Oct 31st it also coincides with the closing of fiscal calendar year end for many institutional investors. We are encouraged by the technical breakouts that occurred today (9/5/19). Please review the charts below for technical projections and updated downside risks for key US stock indexes.

The 1-month Aug 2019 trading range between 2,822-2,845 and 2,940-2,944 has ended today (9/5/19) as the result of the gap up breakout above 2,944. The ascending triangle breakout now suggests +121.89 points or next SPX technical targets to 3,018-3,028 (Jul 2019 all-time highs) and above this to 3,058-3,062 (measured breakout target). Short-term trading support moves up to 2,940-2,947.5 or today’s breakout and 21-day exponential moving average. Secondary support also rises to 2,892-2,900 (8/20/19 and 9/3/19 lows). The bottom of its Aug 2019 trading range at 2,822-2,835 is pivotal medium-term support. Several technical indicators are also confirming SPX price breakout including intra-day price momentum indicator (MACD) and the market breadth indicator (cumulative advancing issues minus declining issues – not shown). The relative strength indicator (SPX vs Russell 3000 Index (RUA) is very close to breaking out above the top of its uptrend channel. A breakout here further supports the leadership role of SPX within US equities.

Source: Courtesy of StockCharts.com

The surge above 26,536 on 9/5/19 confirms a technical price breakout and suggests +1,175.02 points or INDU technical target of 27,066-27,399 (Jul 2019 lows and Jul 2019 record highs) and above this to 27,711 (breakout projection). Trading support is visible along 26,340-26,515 (bottom of 9/5/19 gap up, breakout, and 21-day ema). Secondary support is also available at 25,952-26,098 (8/20/19 and 9/3/19 lows) and then 25,637-25,714 (bottom of Aug 2019 uptrend and 8/28/19 low).The relative strength readings as compared to SPX still warns of continued underperformance. The price momentum trend has yet to confirm a breakout.

Source: Courtesy of StockCharts.com

The NASDAQ Composite may have also broken out of its 1-month symmetrical triangle pattern on a convincing move above 8,031 on 9/5/19. This breakout suggests +402.34 points and renders a technical target to 8,135-8,145 (mid-Jul 2019 lows). A convincing move above this initial resistance can trigger the next rally toward 8,311-8,340 (late-Jul 2019 and early-Aug 2019 highs), and then 8,433 (symmetrical triangle breakout projection). Note the relative strength of COMP/SPX continues to show a defensive descending triangle pattern but price momentum has broken out to the upside. This hints that COMP can generate a trading rally but may lag the SPX until it confirms a relative strength breakout. Initial support is 7,981-8,031 (21-day ema and ascending triangle breakout) and below this to 7,847 (9/3/19 higher low). The bottom of the 1-month triangle as well as the 8/23/19 and 8/28/19 lows at 7,731-7,767 is key medium-term support.

Source: Courtesy of StockCharts.com

The small cap market as represented by Russell 2000 Index (RUT) continue to severely underperform its larger cap peers. See the relative strength downtrends from Jul/Aug 2019 highs. The breakout in the MACD indicator is encouraging as this breakout coincided with the 9/5/19 falling wedge breakout above 1,501. This breakout suggests the potential for a trading rally to 1,534-1,553 coinciding with the early-Aug 2019 breakdown. The ability to clear this supply hurdle can lead to the next rally toward 1,584 (projected target based on recent falling wedge breakout) and then to 1,587-1,599 (Jul/Aug 2019 highs). On the downside initial support is 1,484-1,504 (bottom of 9/5/19 gap up, breakout and 9/21 ema). The Aug/Sep 2019 lows and bottom of falling wedge at 1,447-1,467 remains key secondary support.

Source: Courtesy of StockCharts.com