Sunday, October 14, 2012

Weekly Market Commentary: Major Breadth Loss

Breadth hits like last week usually fester for another few weeks, before a trade-worthy swing low develops in the parent index.  As a result, longs may be less likely to jump on some of the support levels currently available on the daily time frame.

The Percentage of Nasdaq Stocks above the 50-d MA took a big hit, going from a net positive (>60%) to a net negative (45%) by week's end.


Nasdaq Bullish Percents are slower to turn, and take longer to shape a bottom. Given its history, the current swing high is looking a little ominous as to what this means for the Nasdaq. Stochastics also support the theory there will be a new low in the Bullish Percents, before there will be a new high.  As the Nasdaq managed a new all-time high with a lower low in the Bullish Percents, does this mean the next low for the Bullish Percents will see a break of May Nasdaq swing low of 2,726?


The Nasdaq Summation Index is holding to a net bullish picture technically, although the breadth index has the shape of a swing high (which is bearish).


Given the Nasdaq breadth situation, and the close below 3,100, the next level of support would appear to be 2,863. Maybe 'Santa' won't be coming this year?


The Russell 2000 is fast approaching a convergence of support around 820.  The long term picture for the Russell 2000 looks healthier than for the Nasdaq or S&P, but it may take a little longer to get past 868 as the broader market struggles.


The S&P still has a healthy looking chart with a clear succession of higher lows and higher highs, but the volume trend has been ever dwindling since the 2009 low. A break below 1,400 would spell trouble, and a move below 1,266 would turn the rising trend into a consolidation.


So while the daily charts (Nasdaq 100, Russell 2000) point to buying opportunities on Monday's open, the weekly charts suggest the current decline hasn't reached its bottom. Maybe there is only a few days of upside if a rally emerges Monday?

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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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