U.S. markets absorb Dubai technical challenge 

U.S. markets absorb technical challenge

Healthcare REITs, VTR, HCP, NHP, GLW, FDX, EBR, TRW, EGLE

By Michael Ashbaugh, MarketWatch

Last Update: 2:02 PM ET Dec 1, 2009

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, click here.

CINCINNATI (MarketWatch) -- Coming into this week, the big technical question centered around Dubai. Namely, was last week's volatility a lasting threat to the global-market recovery or, instead, a fleeting shakeout?

And based strictly on the technicals, the answer is shaping up as the latter.

The Standard & Poor's 500 Index hourly chart details the past three weeks.

While Dubai's fundamental implications may be difficult to sort out, the S&P's technical backdrop remains straightforward. Namely, the index has closely observed the 1,085 support, bottoming last week at 1,083.7. This keeps its positive near-term bias intact, though looking ahead significant resistance rests at the 2009 peak of 1,113.

Meanwhile, the Dow Jones Industrial Average's near-term backdrop remains the strongest.

Again, the index has absorbed last week's downdraft, establishing support in the 10,230-to-10,250 area. From current levels, modest resistance holds at 10,375 and is followed by the 2009 peak of 10,495.

And the Nasdaq Composite's backdrop remains the shakiest.

As the chart illustrates, the index briefly violated the 2,140 support last week, before reversing back atop this area on Monday. Despite the volatility, its near-term path of least resistance technically remains higher barring a sustained break below its three-week trading range.

Widening the view to six months adds color. Note that even on this wider view, the Nasdaq's backdrop is sluggish at best.

With last week's downdraft, the index challenged its 50-day moving average -- currently at 2,132 -- but has thus far maintained a stance above this area. Generally speaking, the 50-day defines the intermediate-term trend and a violation of this level would raise a flag to a more pronounced downturn.

Moving to the Dow, its uptrend remains firmly grounded.

Notice the index holds comfortably above its upward-sloping 50-day moving average and also remains atop the October peak.

And the S&P 500's six-month backdrop more closely matches the Dow's.

Effectively, the index remains within a tight two-week range near the year's best levels -- constructive price action -- and last week's sharp downdraft barely registers on the chart.

The bigger picture

Coming into this week, the big technical question centered on Dubai. Namely, was last week's downdraft a serious challenge to the U.S. markets' uptrend? Or conversely, was it a one-day wonder?

And from a strictly technical standpoint, the answer is shaping up as the latter.

Returning to the S&P's three-week view makes the point.

Note that despite Dubai's "exogenous-shock-like" impact, the index has thus far held support at 1,085, bottoming last week at 1,083.7. This area was detailed last week, and barring a break lower, the S&P's uptrend is intact.

Still, for market bears anticipating the next downturn, the following technical areas stand out:

Support at the S&P 500's 20-day moving average, currently 1,091.

Support at 1,085, matching its three-week range bottom.

The S&P's 50-day moving average, currently 1,075.

Gap support at 1,072.

Looking ahead, a second sharp downdraft through the 1,072-to-1,085 area would likely signal an intermediate-term trend shift.

Yet barring more significant downside follow through, December is among the strongest months seasonally, and the U.S. markets' 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 near term. For the original comments on the stocks below, check out The Technical Indicator Library.

Health-care REITs outpacing broad markets

Drilling down to sectors, the health-care REITs are acting well technically: HCP, Inc. HCP, Nationwide Health Properties NHP and Ventas, Inc VTR.

As the charts illustrate, each started this week with a strong-volume reversal, challenging 52-week highs despite a shaky market.

The group's relative strength is constructive, positioning these names to further outperform as the U.S. markets stabilize.

Initially profiled Nov. 23, Corning, Inc. GLW has edged slightly higher and remains well positioned.

As the chart illustrates, it staged a steep November rally, breaking decisively a three-month downtrend.

By comparison, the ensuing pullback has been shallow -- coming on lighter volume -- positioning the shares to build on the early-November spike.

While the transports are neutrally positioned, sector bellwether FedEx Corp. FDX is setting up well.

Technically speaking, it's recently broken from a bullish double bottom defined by the September and October troughs.

Since then, it's held the breakout point as support, and its tight band near 52-week highs positions the shares to extend higher.

Eletrobras EBR is a large-cap electric utility operating in Brazil.

Late last week, it knifed from four-month range top just as the global markets were threatening to break down.

Its relative strength is constructive, and the shares' near-term bias remains higher barring a violation of the breakout point, just under $17.

Profiled Nov. 17, TRW Automotive Holdings TRW has edged fractionally lower but remains well positioned.

It initially broke out in early November, fueled by the company's strong third-quarter results.

The subsequent consolidation has been orderly by comparison, placing the shares at a better entry near the breakout point, and 10.5% under the November peak.

And Eagle Bulk Shipping EGLE is a small-cap dry-bulk shipper coming to life.

In mid-November, the shares spiked on strong volume, breaking decisively to five-month highs.

By comparison, last week's pullback was orderly, placing the shares at a better entry near its major moving averages, and 19% under the November peak.