Friday's Bounces Ease Back a Little

There was no real surprise to see the gains from Friday come back a little as Thursday's lows play a siren song. The most likely outcome is a consolidation pennant as prices focus off last week's lows - this might take a week to play out but the surge in volatility may see some pushback to stabilize price action.

The S&P finished just below 200-day MA as it inches back to 2,710 lows. I would be looking for more small losses or a neutral doji. The best of the action is the strong relative performance (against Small Caps) which runs contrary to price action itself.

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Indices Defend 200-day MAs

Last week's selling had put pressure on markets not seen since 2016 but the run of good form has meant Tech and Large Cap Indices are only now testing 200-day MAs. There was a brief overshoot on Thursday but the week closed more settled.

The S&P did well to make it back to its 200-day MA but it complicates the risk:reward which now has a loss of 2,710 as the place for a stop which is well outside most comfort zones. Given that, I would look for some retest of 2,710.

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Buy Signals Blown Away

The support levels which were on offer for the Russell 2000, Dow Jones Industrial Average and S&P were undone by the biggest 1-day loss in the year. Not surprisingly, volume rose in distribution as traders bailed.  The only index to finish on support was the Nasdaq 100. Although with a 4%+ loss it would be a brave trader to be buying the 200-day MA.

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Buy Small Caps.

Today is a simple call for action. On Friday, the Russell 2000 tagged its 200-day MA in a manner which was picture perfect for those peppering the 200-day MA with GTC 'buy' orders.  Monday was the second chance for a slice of this action with another tag of the 200-day MA. If there is a 200-day MA fail it will be a clean sell but as this is oversold on near-term and intermediate stochastics it's looking like a relatively low risk buy with stops on a loss of 1,615 and an initial target of 1,715 - a healthy risk:reward with the index closing at 1,630.

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