Wednesday, August 03, 2011

Daily Market Commentary: Ouch!

Nowhere to hide...

It was a mix of the bad and the worse. There were losses in support for the S&P, Russell 2000 and Semiconductor index. The rising channel and 200-day MA failed to hold for the Dow. While the Nasdaq lost its 200-day MA and turned net bearish.

Best of the indices is still the Nasdaq 100. Technicals haven't fully reversed bearish and neither has the 200-day MA been tested - so there is workable support to aim for, slim though it may be. Today's losses were as bad as seen in other indices, but the larger picture still points to a trading range. As with most trading ranges, what happens at support and resistance carries greater weight than what happens in the middle. So today's action may not influence the Nasdaq 100 as much as it has in other indices.

($NDX)

via StockCharts.com

The Nasdaq took a harder hit than its sister index. It lost 200-day MA support and saw its technicals turn net bearish. However, it too trades within a range. So while today's losses delivered much pain, a larger battle likely lurks down at 2,616 support.

($COMPQ)

via StockCharts.com

The S&P didn't enjoy the same support. It started the day at its 200-day MA. but finished it outside of its trading range. Volume rose sharply in confirmed distribution as sellers ran to the exits. A bear trap is a possibility if there is a rally or gap up tomorrow, but it will need a substantial amount of bullish momentum for any rally is to stick. Shorts are likely licking their lips at the current turn of events; rallies will be sold into, particularly on approach to 20-d and 50-d MAs.

($SPX)

via StockCharts.com

The pain was also felt in the Dow. The index first cracked through channel support before cleanly slicing its 200-day MA. The March swing low at 11,555 is the last point of defense to prevent a larger decline.

($INDU)

via StockCharts.com

The semiconductor index had long ago indicated trouble before the Nasdaq and Nasdaq 100. It added to the woes by breaking below 381 support to a new 52-week low. It still has room to run before it gets to declining channel support. Optimists will find it hard to see the positives. Best strategy is to wait for a relative strength turn against the Nasdaq 100. This will mark the first steps for a recovery.

Philadelphia ($SOX)

via StockCharts.com

Finally, the Russell 2000 suffered the same fate of the S&P as it plunged from its 200-day MA straight through range support. A close above 773 is required for a bear trap. Can it deliver tomorrow?

($RUT)

via StockCharts.com

In my sector analysis I have existing 'buy' in Industrials which looks set to stop out tomorrow. But there are new 'buy' signals for Health Care and Materials which may offer better return prospects. A gap down tomorrow could offer an astute entry and an opportunity to take advantage of any snap rally.

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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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