Thursday, October 16, 2014

Contained Buying for Indices

It wasn't the day I expected, but bulls can take some comfort it wasn't worse.  Some indices fared better than others.

The S&P finished on the bearish side, despite closing a little higher. The inside day to yesterday's wide range day looks like something which will deliver more weakness in the days ahead. A close above yesterday's high would confirm a bottom (maybe not 'the' bottom), but this is something for tomorrow. A 2011 style bottom would still need another 5-6% decline to suggest this.

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Wednesday, October 15, 2014

Bullish Engulfing Pattern in Russell 2000 and Semiconductor Index

While I think markets are close to a swing low, I'm not entirely sure the bottom is there yet. The wide range day and spike lows are setup for a walk-down retest of these lows over the coming weeks. However, today was a step in the right direction for a near term bounce.

Best of the action was in the Russell 2000 and Semiconductor Index. The Russell 2000 finished with a sizable bullish engulfing action that finished the day next to channel resistance. Tomorrow is set up for an upside channel break.

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Volatile Flat Day for Indices

Contained Volatility is perhaps the best way to describe Tuesday's action. By the time markets closed there was little change from open prices, but it was a bit of a roller coaster ride getting there.

Not surprisingly, Small Caps had the best of the action, although relative to what's gone before it was a small change, but it's making big ground relative to Tech and Large Cap indices. The index remains within the sharp falling channel, which is unsustainable in the short term and will likely break upside sooner rather than later. At that point, I would be looking for a trading range in preparation for the next move up or down.  It has already tagged the 10% bottom percentile of loss relative to the 200-day MA (at -8.8%, taken from table below), so now is a good time to be taking nibbles on fundamentally strong Small Caps trading at a discount: look for Small Caps breaking or trading near highs (not necessarily 52-week highs: I like looking at action near 6-month highs).

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Monday, October 13, 2014

Third Big Sell Off in a Row.

The S&P took another big hit to the face as sellers rushed to the exits in late afternoon trading. The 200-day MA was barely noticed on the way down and the August swing low cleanly sliced.  Technicals are oversold and volume is in line with a capitulation, although I would be more comfortable calling a bottom once the index is at least 10% below its 200-day MA (which is 1,714).

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Sunday, October 12, 2014

Semiconductors Hammered

While markets experienced broad selling, it was semiconductors which took the brunt of sellers wrath on weak prospects for the sector. Unfortunately, given the importance of semiconductors at the heart of Technology and therefore, the global economy, there will likely be further repercussions going forward.  The near 7% loss in the Semiconductor Index paid no respect to daily support, opening up support levels on the weekly time frame. The 200-week MA has entered the 61.8% fib retracement zone and is a potential target for the months ahead.

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Thursday, October 09, 2014

One Step Forward, Two Steps Back

It feels like 2009 again, except markets are still above 200-day MAs, and less than 10% from its highs (bar Small Caps). After the relative mediocrity of summer trading, things look to have been flipped on their head.

Except, that things haven't really changed. The S&P hasn't yet tested the August swing low, and will soon have the 200-day MA to offer support. It has only dipped into oversold territory, which suggests a good chance for further losses. With wide range days it's hard to pick entry/exit points, although I would favor a series of inside days from here: a coil would set up a swing trade on a break, but it may take a few days to form.

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Wednesday, October 08, 2014

Market Bottom or False Bottom?

There was a bit of a scramble on the release of the Fed minutes as panic buyers jumped into the market. It's my opinion, with the exception of the Russell 2000, markets hadn't sold off enough to leave a strong bottom, but today's lows will set up a point of defense for any subsequent selling.  Large reactions like today typically come back over subsequent days, but there is plenty of room for wary bulls to take a bite if there is a walk back to the lows.

The S&P gain counted as a bullish engulfing pattern.  Tomorrow it will run into the 50-day MA, and potentially the 20-day MA too. It may even get to 1,987, which had looked so unlikely after yesterday.

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Tuesday, October 07, 2014

Bearish Follow Through

It was a day which belonged to bears from start to finish. Bulls never got a look in, and worse still, indices are now challenging the recent October lows. The real challenge is the August swing low, but the Russell 2000 has moved one step ahead with a return break of the May low and a negation of the 'bear trap'. Andrew Thrasher's observations are even more relevant now.

The Russell 2000 negated the 'bear trap', pushing itself into a zone of minimal support. Sideline bulls will probably be wary of generating a second 'bear trap' after what happened today. This gives bears a bit of a free run. It will also drag other indices down fast.

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