Weekend Commentary from Fallondpicks.com

The market has set up its stall for next week. Volume was not surprisingly, limp. The only real movers on the day were large caps [Dow and S&P], each of which broke to new near term highs. The NASDAQ closed at June's reaction highs, as did the NASDAQ 100, but bullish momentum, as measured by their respective MACD trigger lines, is firmly in the bullish camp. The Russell 2000 closed the week with its breakout intact, managing a positive test of new support (former channel resistance) and the 200-day MA. Of interest (but less noticeable), was its loss of relative strength to the tech averages [NASDAQ and NASDAQ 100] - something which had lasted all of one day, but a strong bullish market will need small caps in the role of primary leader {Tech > Small Cap > Large Cap: Overall market health is bullish but weakening}, and further weakness in this regard would not be good news.

Market internals [$NASI, $NAA50 and $BPCOMPQ] are all in neutral territory (with a bullish bias). The $NASI and $NAA50 are closer to overbought levels than the $BPCOMPQ. A substantial reaction may soon be in the offing (October?), but it may not be the one which kills the 2002-2006 rally given the $BPCOMPQ would quickly be pushed back to oversold levels. June/July reaction lows will be important support levels to watch on the next leg down.

Also of interest was volatility. It closed Friday on a 'bullish hammer', below the 200-day MA. More importantly, it found support at May congestion, and has likely set up a bounce to triangle support, current resistance, around 21.50. Rising volatility is normally associated with a fearful market - further evidence for a correction around the corner?

fallond