Friday, March 20, 2009

Stock Market Commentary: Resistance is not Futile

The market must be screaming for a correction but so far bulls have dug in their heels. Yesterday's weak selling had the potential to be so much more and it will provide some comfort that a charge to the exits was not triggered. If the next downleg can be relatively orderly (i.e. low volume) then the stage will be set for a more sustainable rally rather than the "V" recovery we have seen. Note how the Nasdaq is nestled against declining resistance.


The alternative is a bear trap; the touch of resistance so near the 50-day MA on overbought stochastics will be too tempting for shorts to ignore. If resistance is breached the Nasdaq could make a rapid gains to 1,600 and for once shorts might be the ones left crying. Technicals are finding some bullish legs, particularly the MACD.

Shorts may be more tempted by the Dow which did show heavier volume selling, stayed below its 50-day MA and made a picture perfect touch of November lows (support turned resistance). The Dow is certainly the dog here, but if you are looking for a broader recovery then the Dow is irrelevant; small caps and tech should be your focus.


Having said that, the Russell 2000 still has to push through its 50-day MA, although technicals are all in the green.


Selling is to be expected, but I suspect it will be shorts who will be caught with their pants down.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website
 
f9229fcfd1b1390be00cfccc86c90349c93a4179bf4227457c