Wednesday, May 04, 2011

Daily Market Commentary: Small Caps on the Run

Indices managed to recover some of their losses by the close, but the real damage was done to more speculative Small Caps. This is not good news for those looking for a continuation of the long standing (Mar 2009) bull market. With money channeled to less speculative Large Cap stocks, it marks an end phase for the rally.

Starting with the S&P, the index was able to hold 1,343 support with the 20-day MA rising to lend additional support. A bounce 'buy'? Today's buying opportunities (SOX and Russell 2000) proved to be a risky - and losing - ride for those who took the option to buy the open. There is every opportunity for the S&P to disappoint. Set a stop below Wednesday's low.

($SPX)

via StockCharts.com

The Nasdaq made it down to its 20-day MA before it recovered some of the losses. Some may consider the break of 2,836 done and dusted (it finished at 2,828), but there was enough buying in the afternoon to suggest it may follow through (higher) tomorrow.

($COMPQ)

via StockCharts.com

As a word of caution, my expectation for a bounce off the 20-day MA in the Russell 2000 was given short shrift. The index continued downwards, bringing it close to its 50-day MA. There were 'sell' triggers in the MACD and +DI/-DI to boot. With three big losses in a row this "Three Black Crows" pattern might see a counter bounce, but unlikely to get far above newly imposed 20-day MA resistance.

($RUT)

via StockCharts.com

The Nasdaq 100 is also hanging on to its breakout. Like the sister Nasdaq, it got close to its 20-day MA before buyers stepped in. Little room for bulls to maneuver, but it could bear trap if a rally made it above 2,400 (and if it did, it might not take long to see it past 2,417). Watch the opening hour for leads.

($NDX)

via StockCharts.com

The semiconductors gave bulls a scare when it sliced through both 20-day and 50-day MAs in early trading. It recovered by the close, will it be enough for bulls to build on?

($SOX)

via StockCharts.com

Yesterday's bullish calls were a disappointment for the Russell 2000 and Semiconductor index. Will the indices provide some long-side compensation tomorrow? The risk is if gains are priced in at the open, there may be little room to maneuver if this happens. Today's lows mark places to set stops and define risk.

One thing I did not mention before is the larger sequence of higher highs and higher lows in all markets. The primary trend is still intact and until these break the cyclical bull market continues.

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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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