Monday, February 28, 2011

Daily Market Commentary: Bear Traps or Shorting Opportunity?

It was another eventful day for some key markets. Large Caps were relatively quiet; the S&P added 0.5% which was enough to regain the 20-day MA but volume was light. Technicals improved with a bullish cross between +DI/-DI.

($SPX)

via StockCharts.com

The Nasdaq managed a clear bear trap after last week's successful test of its 50-day MA. Monday's black candlestick is typically viewed as bearish, but the small decline back to 20-day MA support offers an opportunity for bulls to push on.

($COMPQ)

via StockCharts.com

The premise for a bullish reversal in the Nasdaq is helped by a larger bear trap in the Percentage of Nasdaq Stocks above its 50-day MA.

($NAA50R)

via StockCharts.com

But the picture for the Nasdaq 100 is not so optimistic. Monday's bearish black candlestick sat on resistance (former channel support) and offers a better shorting opportunity as part of the gap breakdown.

($NDX)

via StockCharts.com

The semiconductor index is caught in the middle of a short play or bear trap. By Friday's closed the bulls had the edge and the bear trap was negated. But Monday saw a bearish engulfing pattern with a close on channel support. Who will have the edge tomorrow? Technicals favour bears.

($SOX)

via StockCharts.com

Finally, the Russell 2000 offered no real edge. Monday's close left a bearish black candlestick (as with other indices), but the position of this candlestick is well above its 20-day MA. There is also no natural resistance level other than the breakdown gap from last week.

($RUT)

via StockCharts.com

So with indices in the balance. The Nasdaq 100 is looking the most natural shorting opportunity. Whereas the S&P (and Dow) offer the best long side opportunity. Due Diligence as always.

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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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