Tuesday, October 18, 2011

Daily Market Commentary: Friday Reversal

An eight day rally with just a couple of modest down days was never going to last and Monday's reversal was of no great surprise. Bulls will take pleasure the selling volume, while heavier than Friday's, was still generally light. There is reason to suspect more weakness will follow, but there is plenty of support below to provide assistance.

The S&P left with it a potential 'bull trap' as declining resistance (turned support) defined by September's swing highs was tested. A down-day on Tuesday will confirm - with shorts likely to attack from the open tomorrow. Technical strength is still good with relative strength swinging back in its favour and away from more speculative Small Cap stocks.


Small Caps disappointed as relative strength drifted back into the summer malaise. Today's losses were heavier than most indices, although the 50-day MA is only a few points away and is possibly a point of support. Technicals still decent, if not as strong as other indices.


The Nasdaq lost 2% to see it back at 2,616 support. The 200-day MA is nearby and will act as a point of supply, squeezing traders. Tight action is likely until either 200-day MA resistance or 2,616 support is breached. The latter will be attacked first tomorrow morning.


The Nasdaq 100 is faring better, and bulls will look to action here as a leader for the Nasdaq. It is trading well above support of both 2,320 and its 200-day MA with only multi-year highs acting as resistance. Buyers may find the most joy here.


The other index which will help both the Nasdaq and Nasdaq 100 is the semiconductor index. Monday saw a reversal off resistance in what is evolving into a well defined sideways consolidation. Today's selling did see a drop in relative strength to the Nasdaq 100, but the situation is more bullish than it was in the early part of the summer. A break of 381 would be a big boost for tech stocks.


For tomorrow, look for shorts to press the advantage generated today in early morning and last hour trading. Bulls will want to see losses minimized and best bet for them is a tight intraday spread with little volume. Any gap higher will force today's shorts to cover which in itself may prove interesting.

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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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