Market Extra: 4 charts that show why a stock-market rally has taken hold on Wall Street in February

Stocks are levitating higher on Wall Street, with major benchmarks and a few other market indicators offering signs that a rally that took hold in January may give way to a more lasting uptrend.

The durability of this most recent round of ebullience isn’t 100% clear after stocks got routed back in October. Thus far it has been underpinned by waning concerns about rate hikes by the Federal Reserve, and waxing optimism that a prolonged trade spat between the U.S. and China can be resolved in coming weeks, but here are a few indicators that market technicians are watching to help confirm the current bullish turn for equities:

S&P 500 index

The S&P 500 index surged 1.3% higher on Tuesday, with investors watching for a close above the broad-market benchmark’s 200-day moving average at 2,743.38 to help determine if the index is tilting upbeat on a long-term basis. It closed just above that mark, at 2,744. According to Dow Jones Market Data, that ended its longest stint below the 200-day average — 46 trading sessions — since the 48-day period ending in March 2016. Market technicians use moving averages to help gauge bullish and bearish long-term and short-term momentum in an asset.

Thus far, the 2,743-to-2,744 level has served as resistance, with the index tending to recede as it had closed in on that level in recent days, market technicians said. That makes a break above that potentially significant, with Michael Kramer of Mott Capital Management forecasting a climb toward 2,800.

Meanwhile, the Dow Jones Industrial Average DJIA, +1.49% rose more than 370 points Tuesday, extending its gain above a long-term trend line.

The Nasdaq bear-market exit

A table of how the Nasdaq has performed in past bear markets

The stock-market benchmark, often employed as a proxy for the health of technology and internet-related stocks, on Dec. 21 closed more than 20% below its all-time high set on Aug. 21, meeting the widely accepted definition of a bear market. After continuing its fall to mark a closing low for the selloff of 6,192.92 on Dec. 24, the index has punched higher and now stands about 19.8% above its Christmas Eve nadir.

A finish at or above 7,431.50 for the Nasdaq COMP, +1.46%  would mark a rise of 20% from its recent low and — at least by one widely used definition — an exit from bear-market territory.

According to Dow Jones, the past four exits from a bear market saw a gain over the next six months.

Small-cap surge

The index of small-capitalization stocks, the Russell 2000 index RUT, +1.27% , has been surging since a noted Dec. 24 low, outperforming the three other main stock-market benchmarks, according to Frank Cappelleri, a sales trader and technical analyst at Instinet. The Russell 2000 has gained 21.2% since its Christmas Eve nadir, according to FactSet data.

When small-cap stocks rally along with their larger-cap peers it is generally viewed as a bullish sign for the markets.

The Instinet trader said the Russell 2000’s run-up is creating a bullish inverse head-and shoulders pattern:

Dollar

Dollar gauge snaps a win streak

The U.S. dollar spent Tuesday’s session in negative territory, snapping an eight-day winning streak. A strengthening dollar has been a feature of February action, underpinned by haven bets amid worries about a protracted Beijing-Washington tariff spat. A decline on Tuesday, as talks were set to reach high-level officials, helped to bolster stocks on an intraday basis.

Although a stronger buck is often billed as highlighting the strength of the economy, a too-strong dollar can produce headwinds for companies that do much of their business outside of the U.S., as a stronger greenback can increase the relative cost of goods.

As measured by the ICE U.S. Dollar Index DXY, -0.36% , the dollar lost 0.4% on Tuesday, providing some lift for stocks on the session. However, thus far in 2018, the dollar gauge is up 0.6%, according to FactSet data.

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