Saturday, October 06, 2012

Weekly Market Commentary: Breadth Divergence?

Market Breadth continued to evolve swing highs which indicate a slowing of the advance, if not an outright top.  Although, as the Percentage of Nasdaq Stocks Above the 50-day MA suggests, it often takes a lengthy bearish divergence in breadth swing highs before the parent index puts in an actual top. In this regard, we are still in the early stages of shaping this divergence.


The Nasdaq Bullish Percent Index has slowed just below declining resistance defined by 2010/11 swing highs.  Slow stochastics have fallen short of overbought conditions (bullish), although the MACD histogram suggests a peak is already in place.


The Summation Index has also started its rollover process from its swing high and tends to be more consistent in its trend direction, particularly off extremes.  In this case, further lows can be expected in the Summation Index Index and likely the Nasdaq too.


With breadth likely further weakness, it's questionable whether 3,100 support will hold.


The Russell 2000 looks best placed to lead higher as it consolidates off prior resistance.


But the S&P is trading well above support, and close to multi-year highs.


Market Breadth suggests further market consolidation is likely, but it's likely too early to suggest a major market top is in place. The S&P and Nasdaq still hold the leadership roles, although the Russell 2000 is showing signs it may take on the roll of market leader in the coming weeks; perhaps for the '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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