Monday, December 05, 2011

Weekly Stock Market Commentary: 'Bear Flags' Broaden

Last week's stellar rallies redefined the boundaries of 'bear flags' on the weekly timeframe. This a mix of good and bad news. On the good news front, it leaves the indices well positioned to continue the gains of last week. The bad news is that it doesn't negate the broader bearish implications of the pattern; although some indices are better positioned than others to capitalize.

The Russell 2000 is one index which has a number of key resistance areas to negotiate before it can move clear of trouble. The index managed a huge 10% gain on the week, but it closed below 760 resistance with a more significant level at 775; the neckline of the early year (bearish) head-and-shoulder pattern. Bulls need a decisive push above 775 to prevent shorts from building positions at these key resistance levels.


The Dow is one of the better positioned indices. While it's still bound by the 'bear flag' it has pushed itself into early-year congestion, negating the head-and-shoulder pattern and morphing into a broader consolidation (within which the 'bear flag' lies). Technicals positive - which is good news for a push towards 13,000.


The Nasdaq, like the Dow, has pushed itself into the trading range from the first half of the year. It's a scrappy move but there is little to stop getting it to 2,800 - although it's unlikely to be pretty!


Nasdaq Breadth is a little more of a mixed bag. The Summation Index closed down on the week, despite the gains in the parent index. The weaker close was enough to see a 'sell' trigger in stochastics.


While the Percentage of Nasdaq Stocks above the 50-day MA rallied strongly; at just over 50% of stocks above their 50-day MA and with room for further gains, so there is a good chance this rally will continue (despite the weakness in the Summation Index).


For the coming week, look for a consolidation of last week's gains. It will be important for the bullish momentum from last week to carry over, even if the indices only make a modest gain (or even a small loss).

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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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