Wednesday, February 29, 2012

Daily Market Commentary: Volume Selling Fails To Break Channels

It has been a while since markets experienced a significant distribution day, but today was one such day. Luckily the heavier volume selling wasn't accompanied with a big point loss, and prices remained inside tight rising channels for many of the key indices.

But there was an exception.  The Russell 2000 is the index under the most selling pressure and today's action didn't help.  Small Cap selling saw a loss of the 20-day MA with additional pressure on range support. The net result is a significant dent in buyers' confidence.  Should losses continue tomorrow (leading to a confirmed break of the February trading range) the next support level is the 50-day MA down at 786. Note the expansion in relative weakness to Tech


...and Large Cap sectors


The Nasdaq is looking vulnerable, but it has the benefit of expanding relative strength and robust technical health. So while a second day of selling may see channel support broken, it may have enough to attract buyers at the nearby 20-day MA. Of all the indices, it's in the best shape to rebuff a bearish attack.


But despite the relative health of the Nasdaq it's the Russell 2000 which is likely to lead the other indices. If there is a loss of range support (in the Russell 2000) it will likely drag other indices down with it - perhaps expanding into larger tests of 50-day MAs.  Nothing terminal for the rally, but nothing attractive for buyers either - at least in the short term.

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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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