Wednesday, September 21, 2011

Daily Market Commentary: Bull Trap Nasdaq 100

Troubling action in the indices. Large Caps escaped relatively unscathed despite the heavy loss as channel support held. Tech have a little more support to work with but also suffered distribution. Small Caps were just kicked in the teeth with areas of support running out.

I had talked about the importance of the Nasdaq 100 but today's distribution selling looks to have generated a 'bull trap'. The selling brought the index below its 200-day MA, although the 50-day MA remains available as support. However, the damage looks done and shorts will be looking to take advantage of any low volume retest of 2,337.

($NDX)
via StockCharts.com

The index struggling most is the Russell 2000. The index finished the day at minor support but the loss of the 20-day MA leaves 650 as the only major support level protecting against a collapse. Adding to the misery was the loss of nearly 3.7% - by far the worse performing index. Buyers have to step in tomorrow if a broader rout is not to set in.

($RUT)
via StockCharts.com

The S&P lost 20-day MA support on distribution, but channel support remains. It will also benefit from flight-to-safety buyers.

($SPX)
via StockCharts.com

Tomorrow's focus should be on Small Caps. If the Russell 2000 gaps lower and fails to recover in the first hour of trading then watch for channel breakdowns in Large Caps and Tech averages brought closer to channel support.

Optimists will be in thin supply tomorrow.

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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 Trading Strategy Marketplace Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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