Bounce is well established, but nothing more

Another day of gains has effectively confirmed the first swing low, so now we await the retest. Indices are quickly coming up against moving average resistance which is the first test of them.

The S&P is about to tag the 20-day MA on a MACD and On-Balance-Volume trigger 'buy'. While I'm looking for an eventual retest of 2,191 it doesn't mean the rally will be cut short soon. There is a sizable gap between the 20-day and 50-day MAs, which in itself is a possible trade opportunity, but it's hard to see this rally making it that far.

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The Bounce You Want To Avoid

It looks like we are in the process of the initial bounce, but it's a bounce which typically forces 'weak hand' buyers to panic themselves into positions; these buyers will quickly sell when markets start to retest Monday's lows. But, it's a start.

We - and America in particular - is a long way from the end of the Covid rampage. When death and infection rates pick up we are going to see markets weaken and then we will be looking at lows, or maybe new lows. On the plus side, trading volume was higher in accumulation.

The S&P improvements are working against a relative performance drop against the Russell 2000. Technicals remain weak and show no divergences. 

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Russell 2000 and Nasdaq Continue to Seek A Bottom

While the S&P took another, smaller, step lower. Both the Nasdaq and Russell 2000 seem to have stabilized around last week's trading range. Today's volume was lighter than Friday but remained very heavy overall. Traders willing to use the current low as a risk measure may find enough room for a relief-rally trade, but it won't be one for the feint of heart, and could easily be stopped out tomorrow.

In the case of the Russell 2000 ETF, $IWM, the trade stop is below $95.69, but with an ATR of 7.84 you would ideally be looking at a stop closer to $83s to allow for volatility - making the typical risk:reward worthless. So, with that caveat, buyers want to be close to the exit button.

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Markets Finish The Week Near Lows

Wednesday had offered the opportunity for the start of a swing low following a 'bullish' hammer in the S&P, but there were more indecisive candlesticks in the Nasdaq and Russell 2000, and with Friday's selling coming on the back of higher volume - although this coincided with a Triple witch for options expiration - undermined any possible demand mid-week action could have hinted at.

Markets are again in a situation seeking a low, and with key indices finishing near the week's lows (likely awaiting news over the weekend), the chance for yet another gap down tomorrow looks high.  What will be important will be the selling volume - we want to see some exhaustion (light volume) on down days, followed by higher volume buying on days markets are able to close higher.

The S&P looks like it will gap down tomorrow; failed 'bullish hammer's have a nasty habit of trying to seek new lows. The only thing 'to like' here is the relative underperformance against the Russell 2000; if traders are moving back to more speculative stocks it might raise the opportunity for a more sustained low.

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