Sunday, January 30, 2011

Weekly Market Commentary: Bears Take Control

Friday's selloff was enough to dictate terms for the week.

The Nasdaq has yet to make it all the way to 2,818 resistance. Instead, a mini-resistance level has developed at 2,766. Stochastics are weakening from a reaction peak, suggesting a pullback of a number of weeks is in the making.

Nasdaq

via StockCharts.com

The Nasdaq 100 managed to eek out a tiny gain and is well above 2,217 support. Going forward, market momentum will depend on how well the Nasdaq 100 holds up on future weakness. Should it stumble a larger rout is likely.

($NDX)

via StockCharts.com

Nasdaq Breadth suffered a second week of sharp declines. The Nasdaq Percentage of Stocks Above the 50-day MA closed the week just above the 50% market; reaction bottoms occur around 30% - although during the current cyclical bull market the Nasdaq has found reaction lows when in the mid-teens. Net effect, more downside ahead.

($NAA50R)

via StockCharts.com

Meanwhile, the lagging S&P is below 2008 mini-reaction high resistance around 1,300.

($SPX)

via StockCharts.com

Play for further weakness - perhaps lasting a few weeks - but not enough to kill the broader rally. Look to fib retracements from the 2010-11 rally as a downside target with broader channel support nearby to play a role if needed too.

Nasdaq

via StockCharts.com

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. I offer a range of stock trading strategies for global markets which can be Previewed for Free with delayed trade signals. You can also view the top-10 best trading strategies for the US, UK, Europe and Rest-of-the-World in the Zignals Trading Strategy Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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