Tuesday, October 25, 2011

Daily Market Commentary: Rally Continues

On Sunday I commented on the weekly picture of markets where I suggested this week would be bearish, with the weakness to start on Monday. As is the norm, markets ignored this and powered higher - Small Caps and Semiconductors performing particularly well. The only aspect which struck as bearish was the drop in stock breakout candidates from Friday's 26 to today's 13.

Small Caps finally turned net bullish in their technicals as 731 resistance was cleared; The counter rally which emerged from the September breakdown and subsequent bear trap played to form as it ignored summer resistance. There was also a continued (bullish) expansion in relative strength terms against Tech and Large Cap indices.


Helping Tech indices were the semiconductors. Here there was an early stage 'Golden Cross' between 20-day and 50-day MAs, further helped by the break of 381.


Strength in semiconductors helped fuel the rallies in the Nasdaq and Nasdaq 100. The latter index is fast approaching multi-year high resistance. Buying volume was disappointing and if a push above 2,400 is to succeed this will have to sharply improve.


Finally, the S&P came close to tagging 1,260 resistance. Volume and relative strength dropped as money flowed out of the safety of Large Cap stocks into more speculative Technology and Small Cap stocks. The next area of resistance is the 200-day MA currently lurking at 1,274. Note the 'Golden Cross' between 20-day and 50-day MAs.


While today was a great day for bulls I would still hold for a bearish end-of-week. The October advance has been fantastic but it needs more than a narrow sideways pattern to relieve overbought conditions. Ideally, a test of the 20-day and/or 50-day MA would go a long way to offering support for a more sustainable ('Santa'??) 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 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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