Saturday, July 10, 2010

Weekly Market Commentary: Inside Week

After the prior week bear flag break this week recovered some of the losses to close with an inside week. It doesn't negate the bearishness of the bear flag break but the recovery gives bulls an edge into next week (and earnings season).

The S&P edged over the (bearish) head-and-shoulder neckline and if it can crack above the bear flag highs might give shorts something to worry about. On the flip side, stochastics are in no-mans land and the MACD is a long way from turning bullish. Bears will probably wait for bulls to run out of steam before getting aggressive again; look for a low volume rally next week.



Not much different for the Nasdaq with the exception the index has yet to break below long standing support of 2,020. If bulls had a wish it would probably be for a trading range between 2,020 and 2,535 given the 2009/10 rally just can't keep going up forever.



The Nasdaq 100 is playing off a support line dating back to 2006 at 1,702.



The Russell 2000 is holding a support area of 614 which stretches down to 600. If there is a weekly close below 600 then there is a big price void down to March 2009 lows at 350. Stochastics also suggest some way to go before we see a bottom. However, the short term picture favors a rally next week.



Breadth indicators remain a bit of a mixed bag. The Percentage of S&P Stocks above the 50-day MA bottomed at 5.4% in the previous week - the March 2009 bottom came in at 5.00% - it finished last week at 34%, almost a 400% gain on the week and points to value buyers in the market.



The Percentage of Nasdaq Stocks above the 50-day MA hasn't plumbed the depths of its lows in 2008 (at 3.5%) but is working support around the 15% mark which also was also the bottoming point of March 2009.



So next week (and perhaps the next two or three weeks) odds favor bulls controlling the market; maybe earnings will not be as bad as market participants are fearing in light of recent economic data? But the long term trend remains under control of bears and only when bear flags highs are tested will it be known how much influence they have.

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