Saturday, July 30, 2011

Weekly Market Commentary: Russell 2000 and S&P Under Pressure

A bad week for markets, overshadowed by Washington politics, pulled indices closer to support. Looking at weekly charts it's not hard to see the reason for the selling, especially for the 'smarrt' money holding from 2009 looking to take profits, or buyers in 2011 who have seen their positions meander around with little to show for it.

The strongest index before the week started was also the index to suffer least by the selling. The Nasdaq 100 may have reversed last week's breakout, leaving behind a potential 'bull trap', but it's still the index best positioned to lead should there be any semblance of buying interest.

($NDX)

via StockCharts.com

Strength in the Nasdaq 100 has a positive knock on effect on the Nasdaq, despite the latter index shedding over 5% on the week. The index also hasn't cracked above 2,887 resistance, but remains well positioned inside the bullish channel.

Nasdaq

via StockCharts.com

Unfortunately, the Russell 2000 pulled further away from its confirmed bull trap and is moving towards 760 support. Small Caps are key leaders in market direction and should the bullish channel established from the March 2009 lows break it will likely drag the other indices down with it.

($RUT)

via StockCharts.com

The S&P is the index closest to channel support. But it has been under performing relative to the 2007 high, so while it may be the first index to break outside of it's channel, it hasn't been a leading index for some time.

($SPX)

via StockCharts.com

S&P Market Breadth is also pointing to a likely channel break next week. The S&P Bullish Percents lost channel support, negating the prior 'bear trap'. The Bullish Percents could 'bear trap' for a second time, but for now treat it as a breakdown. A strong rally on Monday would likely confirm it as a 'bear trap', but the longer it takes the next rally to emerge the less likely the 'bear trap' will reverse (i.e. it will count as a confirmed channel break).

S&P 500 Bullish Percent Index ($BPSPX)

via StockCharts.com

For next week, watch Small Caps (Russell 2000) and Nasdaq 100 for leads, but it could be a busy first half of the week.

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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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