Wednesday, July 27, 2011

Daily Market Commentary: Nasdaq 100 Bull Trap

It was a bad day all round for the indices, but the real loser was the Nasdaq 100.

The Nasdaq 100 was the market leader, breaking to a new multi-year high and offering a platform for other indices to follow suit. Unfortunately, todays' selling left a sizable bull trap with a 'sell' trigger in the +DI/-DI. The Nasdaq 100 finished at its 20-day MA, but no other index has found support here. Significant distribution suggests selling will continue down to its 50-day MA.

($NDX)

via StockCharts.com

The Nasdaq suffered three 'sell' triggers in its technicals; MACD, OBV and +DI/-DI. It also bull trapped for the third time. Not to mention the clean loss of 20-day MA support. Have I left anything out? Bad day for Tech.

($COMPQ)

via StockCharts.com

The S&P got hit with multiple bearish turns; higher volume distribution, a clean loss of 20-d and 50-d MA support, and 'sell' triggers in MACD and on-balance-volume.The 200-day MA is next support level.

($SPX)

via StockCharts.com

Finally, the Russell 2000 took one of the biggest hits on the day. It cleanly sliced through its 50-day MA and is only a few points away from a test of its 200-day MA. The best thing for bulls is the larger trading range which keeps today's losses in check.

($RUT)

via StockCharts.com

The risk tomorrow is for downside follow through. The problem for bulls is today's volume; it's going to be hard for buyers to consume the overhead supply. I suspect tomorrow will see tighter trading around Wednesday's low.


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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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