Wednesday, February 15, 2012

Daily Market Commentary: Small Caps Break

Small Caps had been the weakest index the past couple of days and this under performance came back to haunt the index as rising trendline support was knocked out. Other indices were holding up reasonably well in the morning, but afternoon trading quickly saw sellers take control.

The breakdown in the Russell 2000 is clear to see. The good news for bulls is the close proximity of support at the 20-day MA.


Next hardest hit by selling were the Tech averages. The Nasdaq suffered a bearish engulfing pattern on higher volume selling (distribution). The selling was accompanied by a MACD trigger 'sell', although the rising bull channel was not broken.


The Nasdaq 100 suffered a similar bearish swing, but didn't suffer a MACD trigger 'sell'


Fueling Tech weakness has been indecision in the semiconductor index, although the selling was not as bad as experienced in the Nasdaq and Nasdaq 100.


Large Caps were one sector to escape relatively unscathed from today's selling. Volume climbed to register a distribution day, but relative strength has been steadily improving.  So what funds are flowing into the market are getting channeled into Large Cap stocks.


For Thursday it's likely to be more of the same. Short sellers will be looking at Small Caps to continue their decline, while bulls will want to keep the attention focused on Large Caps. However, I suspect Large Caps will eventually suffer the same fate as Small Caps, so buyers are best to play cautious and let the decline play out.

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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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