Sunday, June 05, 2011

Weekly Market Commentary: Bull Traps in Nasdaq and Small Caps

Finally have internet hooked up so its nose to the grindstone again!

There were two significant reversals on the weekly time frame from my last update. First up is the bull trap in the Nasdaq; defined by 2,818. The break above, then below this level occurred within a broader bullish channel. It's not a disaster for bulls but it's a clear shot across the bows. The test of rising channel will be a more important battle for bulls.


The Nasdaq 100 was not as susceptible to the bull trap as it's sister Nasdaq. The threshold for support is 2,217 which is still a good 65 points away. Losses of the past month are more likely to represent a broadening of the 9-month trading range - but what happens elsewhere will ultimately influence if 2,217 support can hold.


The Percentage of Nasdaq Stocks on point-n-figure 'buy' signals dropped below the bullish 60% mark to a more neutral stance.


While the Percentage of Nasdaq Stocks above the 50-day MA is down at 34%, but well away from the 5% lows of October 2008. Reaction lows typically emerge below 30%.


The Russell 2000 is in a similar state as the Nasdaq; stuck with a bull trap but with a bullish channel to defend.


But the bull trap in the S&P carries less weight because it's associated with minor resistance. However, rising channel support is still significant.


The cyclical bull market is intact and the intermediate term advance has slowed, at a minimum, to a trading range. Rising channels and/or the early 2011 reaction low are a more significant area to defend.

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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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