Sunday, July 03, 2011

Weekly Market Commentary: Channel Support Plays Out

Last week the charts were showing an opportunity for a bounce. Bar Monday's failure to follow through on Friday's selling it was a great week for bulls. The only downside on the week was the poor volume.

The Nasdaq finished on former resistance at 2,818 but the real challenge will be breaking 2,888. Given the lack of volume it may be a week of consolidation before a stronger challenge on highs can be mounted.

Nasdaq

via StockCharts.com

Supporting Nasdaq internals all confirmed the reaction low with room to maneuver to resistance (i.e. the rally isn't done yet). The Percentage of Nasdaq Stocks above the 50-day MA rose from a reaction low of 21% to an end-of-week 52%.

Nasdaq Percent of Stocks Above 50 Day Moving Average ($NAA50R)

via StockCharts.com

And the Summation Index offers plenty of upside potential with stochastics still in oversold territory on bounce.

Nasdaq Summation Index (Ratio Adjusted) ($NASI)

via StockCharts.com

But Nasdaq Bullish Percents at 54% are some way from a bottom, although stochastics do suggest a swing low is in place. Ideally, all three market internals should be each oversold in addition to having oversold technicals.

Nasdaq Composite Bullish Percent Index ($BPCOMPQ)

via StockCharts.com

Meanwhile, the S&P chugs along having successfully defended converged support. But the index is well of challenging the 2007 high.

($SPX)

via StockCharts.com

And the Russell 2000 is showing good form to see it close to challenging the 2007 highs, despite the bounce coming before the channel test.

Russell 2000 Small Cap Index ($RUT)

via StockCharts.com

For next week it's hard to see another week like the one just gone. Mild gains or flat trading would probably be the best thing bulls would want from the week. If selling does emerge, then it will be important for volume to remain light (or preferably be lighter).

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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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