Monday, September 05, 2011

Weekly Market Commentary: Bearish Spikes

Friday's sell off did much to turn what had been a respectable performance by the indices up 'til then. The poor jobs data combined with tetchiness over the Labor Day holiday (Futures are down) may well carry over into Tuesday's open.

What had looked like market double bottoms have instead morphed into larger consolidations. Consolidations which typically break in the direction of the prior trend, which in this case is down.

But it's not all doom and gloom.

The Nasdaq was repelled by 2,535 resistance and for now (at least) is caught between 2,125 support and 2,535 resistance. Volume was again lower last week and intermediate term stochastics are oversold. These conditions resulted in the crash of 2008, but there isn't the same level of vulnerability here (there is more support to work with). More of a case of once bitten, twice shy.


The Nasdaq 100 was caught by supply at former channel support. In the end, the index finished below 2,217 resistance but above 2,130. This is still good for the Nasdaq 100 (for now at least). Interestingly, stochastics are not yet oversold.


Nasdaq Breadth is trying to recover with a modest bounce last week. But still much work to do - but historically, trade-worthy bottoms have emerged at such swing lows.


On a weekly timeframe the Russell 2000 has little to offer either side. At the moment it's caught in the middle between 760 resistance and 595 support.


The S&P was repelled by a thick band of resistance between 1,224 and 1,248. However this index has been underperforming for a while. Action in Small Caps should be of greater interest than action here.


But even with the S&P, breadth is improving and may be more attractive than the Nasdaq. Prior to 2008 the rally in the NYSE Summation Index is near a 'buy' (technicals need to confirm and neither MACD or Stochastics are there yet).


There was a substantial rally in the S&P Bullish Percents which was confirmed by Stochastics, but not yet by the MACD.


Although the Percentage of S&P stocks above the 50-day MA is still weak.


If markets can recover Friday's losses it would come close to negating the bearishness of last week. Once last week's highs are taken out, the bearish implications of the spike-high-candlestick would be negated.

As for the consolidations, follow the action on the daily timeframe to see if these break to the downside.

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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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