Tuesday, March 15, 2011

Daily Market Commentary: Decent Recovery But Bearish Gap Dominates

With the day starting on the back of a 10% discount in the Nikkei it was always going to be a tough market for buyers. But the brave stepped in right from the off and were able to position themselves nicely for a bounce. The concern is the morning gap down; it has the look of a measuring gap which suggests the market is only half way towards its true bottom. This isn't to say a bounce can't emerge, but when it does it's likely to stall out quickly.

The S&P has a 'hammer' which held 1,260 at the low on heavier volume (distribution). The newly drawn channel is holding support which suggests there is a good chance for a bounce higher tomorrow.

($SPX)

via StockCharts.com

The Nasdaq finished just below 2,670 support after starting the day more than 40 points lower. Volume climbed to register a distribution day. The set up offers enough for a long play to channel resistance, but if it gaps and stalls tomorrow then I be worried for a retest of Tuesday's low (ahead of a push on to channel resistance).

($COMPQ)

via StockCharts.com

The Russell 2000 offered the most bullish set up. Today's real body (the range between the open and closing price) was contained by the channel. The candle sitting on channel support is nicely positioned for a move higher - perhaps more so than the Nasdaq. Again, the target is channel resistance and unlikely anything more, but play that by ear.

($RUT)

via StockCharts.com

For tech watchers, keep an eye on the semiconductor index. It's plumb between 50-day and 200-day MAs, which suggests scrappy action ahead. I have marked a gap on the chart which filled intraday - but this could be a measuring gap. If true, then the target is c390 which is close to the 200-day MA. Also, if it's a measuring gap then the rally can't close the gap (on an end-of-day basis). I would prefer to use action here as a proxy for the Nasdaq or Nasdaq 100.

($SOX)

via StockCharts.com

Still like the idea of a bounce, despite the dominating gaps. However, if buyers fail to control the first hour of trading it might turn out to be a different story.

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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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