Monday, March 07, 2011

Daily Market Commentary: Worrying Developments For Bulls

The market rallies which have been in play since September experienced another speed wobble on their ascent higher. The S&P closed outside of channel support on higher volume distribution. It has only the 50-day MA to look too for support as technicals are wavering too.

($SPX)

via StockCharts.com

The Nasdaq has struggled since it broke from its slower ascent channel. The fourth major selloff in nine days took the index back to its 50-day MA. But this test looks like it will be one too many for bulls to defend. Volume climbed to register significant distribution. The breakdown gap from February is looking ominous.

($COMPQ)

via StockCharts.com

The Russell 2000 hasn't given up the fight. With the 50-day MA hugging channel support bulls have the benefit of converged support to work with. Will it be enough? Technicals struggling.

($RUT)

via StockCharts.com

Whereas the S&P broke channel support, the Dow Jones index only lost enough to drop to channel support. Like the Russell 2000 there is the benefit of a converged 50-day MA and channel support.

($INDU)

via StockCharts.com

The Nasdaq 100 switched from what was looking like a substantial bear trap, into a small bull trap. More worryingly, the breakdown gap held firm. This reversal has the potential to deteriorate fast. Like other indices, bulls are heavily dependent on the 50-day MA holding as support. Selling volume hasn't been as great, but the bull trap is a significant psychological blow.

($NDX)

via StockCharts.com

Not helping is the picture perfect breakdown in the economically important semiconductor index. The SOX is holding the 50-day MA as support, but if this breaks it could get messy with the 200-day MA nearly 20% away.

($SOX)

via StockCharts.com

For the next couple of days it will be all down to 50-day MAs holding as support. Should these break it would put indices in the no-mans land between 50-day and 200-day MAs. While a sharp decline is unlikely in this zone, it's not usually one where clear trends emerge. A few months of consolidation is what the market needs, staying above the 200-day MA as it does so. Buying at 50-day MAs is a risk, but it offers opportunity where risk is well defined (i.e. stops below 50-day MAs).

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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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