Monday, November 21, 2011

Daily Market Commentary: S&P 50-day MA Breaks

Last Thursday saw the Nasdaq 100 give up its 50-day MA; Friday it was the turn of the Nasdaq; Today it was the S&P 500. Volume climbed to register distribution as technical weakness accelerated.

The break of the 50-day MA in the S&P was accompanied with an on-balance-volume 'sell' trigger. Today's loss firmly dropped the index inside August-September congestion, but I don't expect the S&P to find support until October lows are tested - primarily because of the 'bull traps'. However, this doesn't kill the possibility of a 'Santa Rally', just the timing of a swing low.


The Nasdaq gapped lower and may 'dead-cat' bounce back to its 50-day MA. Watch for a potential 'Death Cross' between 20-day and 50-day MA, with the weakening 20-day MA acting as an attack point for shorts.


The isolation of the selling is best illustrated by the Nasdaq 100. That is one lonely candeline!


Only the Russell 2000 is clinging on to 50-day MA support. If bulls are looking for a bounce from tomorrow's open then the Russell 2000 is the index to target.


Four days of selling which finished with Monday's gap lower leaves markets well placed for recovery tomorrow, perhaps enough to close today's breakdown gap. Beyond that it may be a return to lower prices, potentially contained by a falling 20-day MA until October lows offer some support, and maybe the grounds for a '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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