Sunday, May 23, 2010

Weekly Market Commentary: Watch Fibonacci Retracements

Technically, breaks in market rallies occurred on February corrections but this week's close effectively confirmed such weakness. But it's not all doom - a similar play occurred in mid-2007; back then, markets rallied to new highs before the true meltdown began. Will a second 'get out' offer itself here?

The three S&P Fibonacci levels to watch are 1004.18, 943.62 and 883.06. The 50% retracement at 943 plays close to reaction highs in late 2008 and early 2009 and is looking attractive as a downside target. Weekly momentum is not oversold, but will likely be on testing 1004.18, so look for a decent bounce around 1,000 with an eventual (intermediate) bottom around 945.

($SPX)

via StockCharts.com

The Nasdaq has a key support level at 2,020 which is close to the first Fibonacci level at 2,050. Another support at 1,759 is near the last Fibonacci level at 1,750. But 2,020 may be enough to see a decent bounce without it going much lower.

Nasdaq

via StockCharts.com

Nasdaq Bullish Percents have fallen out of the Primary Gain Zone (>60) and indicates markets are in the early stages of a new down trend.

Nasdaq Composite Bullish Percent Index ($BPCOMPQ)

via StockCharts.com

An early phase downtrend is supported by the Nasdaq Summation Index

Nasdaq Summation Index (Ratio Adjusted) ($NASI):

via StockCharts.com

However, the Percentage of Nasdaq Stocks above 50-day MA has fallen below 20% which in the past has signaled a tradable bottom if not now, then within the next 4 weeks (for a rally of 8 weeks or more).

Nasdaq Percent of Stocks Above 50 Day Moving Average ($NAA50R)

via StockCharts.com

It was a similar story for the NYSE Breadth Indicators. Big Bull Trap in the Summation Index but nowhere near oversold for either bull or bear market.

NYSE Summation Index (Ratio Adjusted) ($NYSI)

via StockCharts.com

And a big void to fill for the S&P Bullish Percents; if it can dig in at 50% there is a chance one could call this a cyclical bull market 'buy' - but the sharp losses suggest it could drop all the way back to the low teens.

($BPSPX)

via StockCharts.com

Although the Percentage of S&P stocks above the 50-day MA is deeply oversold at 8.6%, a bounce can be expected soon.

Percent of Stocks Above 50 Day Moving Average ($SPXA50R)

via StockCharts.com

So be ready for a trader's rally - but not a buyers one.

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Dr. Declan Fallon, Senior Market Technician for Zignals.com, offers a range of stock trading strategies for global markets, also available through the latest rich internet application for finance, the Zignals MarketPortal or the Zignals Trading Strategy MarketPlace.

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