CINCINNATI (MarketWatch) — U.S. stocks have reversed from the year’s worst levels, and a corrective bounce is technically underway.

Nonetheless, the August downdraft has inflicted broadly-based damage, and an extended basing period is likely due — in the best case — before the U.S. markets’ next durable leg higher.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -1.15% hourly chart highlights the past two weeks.

As illustrated, the S&P has extended its breakdown, punctuating a steep plunge from the 200-day moving average. The index has dropped as much as 268 points, or 12.5%, from the 2015 peak.

From current levels, very near-term resistance rests at 1,954, and is followed by firmer overhead at last week’s close of 1,971, an area matching the December low.

Meanwhile, the Dow industrials’ DJIA, -1.84% near-term backdrop is similar.

Consider that the index has plunged 2,198 points — the bulk of it across three sessions — after topping just under major resistance at 17,580, better illustrated on the daily chart.

Its technical levels are poorly defined against the current backdrop, though last week’s close of 16,460 marks the Dow’s first notable resistance.

And the Nasdaq Composite COMP, -0.13% has fallen off a cliff, plunging to 10-month lows.

From current levels, initial resistance spans from 4,695 to last week’s close of 4,706.

Collectively, last week’s close punctuated the U.S. markets’ initial breakdown, and each benchmark’s response on the first retest should be a useful bull-bear gauge.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq violated major support at the March peak last week, and has plunged to 10-month lows across just four sessions. Its breakdown includes a violation of the 200-day moving average, and former support at the 2014 peak.

The straightline downdraft is distinctly bearish for the longer-term, though a close atop first resistance around 4,700 would mark a first step toward stabilization.

Similarly, the Dow Jones Industrial Average has broken down technically, plunging to an 18-month closing low.

The downdraft punctuates consecutive failed tests of the 2014 peak, the 200-day moving average, and the 17,580 breakdown point.

Again, the Dow’s technical levels are now poorly defined, though notable resistance rests at last week’s close of 16,460.

And the S&P 500 has plunged to 10-month lows, after knifing through major support at the 200-day moving average and the 2,080 mark.

The S&P closed Monday down 8.1% on the year, and has dropped as much as 12.5% from the 2015 peak. First resistance rests at last week’s close of 1,971, and a close higher would mark an early step toward stabilization.

The bigger picture

Broadly speaking, the August downdraft has been a technical tidal wave, inflicting severe, and likely lasting, damage.

Looking ahead, the best-case scenario is that Monday marked the low, and the major benchmarks swiftly reverse course, mirroring the October market whipsaw. Though possible, the “swift reversal” outcome is less likely against the current backdrop. The August plunge has been directionally aggressive — originating from an historically tight range on the S&P 500 — and punctuated by the Volatility Index’ biggest weekly spike on record.

Beyond the headline benchmarks, consider the following:

Returning to the small-caps, the iShares Russell 2000 ETF IWM, -3.50% has plunged to 10-month lows, following a failed retest of the 200-day moving average from underneath.

The downturn resolves a head-and-shoulders top — a high-reliability bearish reversal pattern — and the IWM’s breakdown point now marks major resistance. Though due a corrective bounce, the small-cap benchmark’s longer-term bias technically points lower.

Similarly, the SPDR S&P MidCap 400 MDY, -2.49% has plunged to a 10-month closing low following a failed retest of its breakdown point from underneath. The mid-cap benchmark is traversing less-charted territory, and volatility is to be expected as it establishes a technical floor.

And to reiterate, last week’s technical breakdown truly took hold as the Russell 3000 Index RUA, -1.20% violated its 200-day moving average concurrently with the S&P 500. The Russell 3000 is a more comprehensive benchmark, encompassing about 98% of all U.S. market capitalization.

Moving to the SPDR Trust S&P 500 SPY, -1.11% , its breakdown has been driven by a volume spike, and distinctly bearish internals.

Consider that Friday’s down volume surpassed up volume by a nearly 14-to-1 margin on the NYSE, while Monday’s downdraft was underpinned by nearly 33-to-1 negative breadth.

Under normal market conditions, two 9-to-1 down days would signal bearish extremes, consistent with a major trend shift.

More plainly, the August downturn has been internally aggressive, fueled by bearish breadth statistics that until now, hadn’t surfaced for several years.

Against this backdrop, the Volatility Index VIX, +0.10% has taken flight, notching consecutive daily spikes exceeding 45%.

And consider that Monday’s incremental increase followed what was already the VIX’ largest weekly spike on record.

As detailed repeatedly, this likely isn’t a bullish volatility spike. The VIX briefly reached its highest levels since 2009 this week, and is now traversing less-charted territory. Its series of “higher highs” is a bearish longer-term structure.

Moving to potential support, the S&P 500’s three-year view adds perspective. This is a weekly chart, with each bar representing one week.

Several inflection points remain worth tracking, as initially detailed in Monday’s review. Specifically:

The S&P’s 10% correction mark rests at 1,921. Recall that the October downturn concluded with a 9.9% correction.

The S&P’s weekly closing low, going back to May 2014, rests at 1,886. This area matches a former range top, and marks its first notable technical floor.

The S&P’s October closing low held at 1,862, and its absolute October low came in at 1,820.

With these areas detailed, the S&P bottomed Monday at 1,867 before rising to close at 1,893. So it’s initially stabilized near potential support, a near-term positive.

The question now is the sustainability, and quality, of this week's rally attempt.

When gauging the quality, the S&P’s first notable resistance rests at last week’s close of 1,971, a level matching the December low. A nearly immediate reversal higher would strengthen the near-term bull case, placing the S&P on somewhat firmer technical ground.

But beyond near-term tests, the August downdraft has inflicted significant technical damage, and the U.S. markets’ longer-term bias points lower. Establishing a durable floor will more likely be a process than an event.

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.