Monday, May 07, 2012

Daily Market Commentary: Bull Traps

Friday was when the damage was done to the Daily timeframe charts, Monday was just a respite to the selling.  All indices were hit. 

The S&P was left with a 'bull trap' after Friday's selling undercut the 50-day MA.  All technicals are net bearish, but a loss of 1,357 would put a new swing low into play. The 200-day MA would then become the next target down.


The Nasdaq has already marked a new swing low, but there is an outside shot of a support backtest.  Technicals had turned net bearish before the S&P, but there is a nascent bullish divergence shaping up in the MACD histogram, with on-balance-volume about to turn net bullish.


The Russell 2000 has been range bound for most of 2012, so Friday's selling didn't impact as much as it effected the S&P or Nasdaq.


While the semiconductor index is treading water at 395 support there are early signs of bullish divergences in supporting technicals.


The presence of support in the Semiconductor index and Nasdaq offers the best opportunity for buyers on Tuesday.  Large and Small Caps would likely rise in sympathy but lack clear support of the aforementioned indices. The worry for bulls is if there are gap downs which don't recover in the first hour of trading, this would turn support into resistance.

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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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