Wednesday, December 16, 2009

Stock Market Commentary: Breakouts Vulnerable

Losses in the Russell 2000 weren't enough to negate Monday's breakout, but breakouts for the Nasdaq and S&P are very much in the nip-and-tuck range as to whether their resistance breaks are still valid.


For both the Nasdaq and S&P volume climbed to register a technical distribution day - a demonstration of churn at resistance.


My expectations going forward from September were for a sizable correction in the Nasdaq. As we know, the Nasdaq did anything but - although the breadth indicators themselves weakened as much, and in some cases (such as the Percentage of Stocks above the 200-day MA) more than expected.

September

December


Rallies can't survive without the health of the underlying components. At the moment, those components are experiencing selling stress - particularly on the long term time frame (as per 200-day MA stats). While the market may continue to favour the bulls into the end-of-year, next year will be a whole new ball game.

My outlook for 2010 is for a trading range, but January could see this latter year rally unwind in dramatic style. The chances of getting down to March 2009 lows are slim but a Nasdaq low in the 1700s at some point in early 2010 would not surprise me.

If you are long and looking at escape hatches, a break of the November reaction low (2,050 for the Nasdaq) would be a good exit; giving the market plenty of time to recover from any mild decline, while limiting downside risk and maintaining longstanding profits held from purchases earlier in the year.


Dr. Declan Fallon, Senior Market Technician, Zignals.com. November 2009 has seen a significant upgrade and is on course to becoming the eBay of finance with our new Beta MarketPlace and a new rich internet application for finance, the Zignals Dashboard. Zignals now has new fundamental stock alerts, stock charts for Indian, Australian, Frankfurt and soon Canadian stocks, tabbed stock list watchlists, multi-currency portfolio manager, active fundamental system stock screener and trading system builder. New Forex and Index data.

 
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