Monday, November 26, 2012

Daily Market Commentary: Breadth Developing Swing Low

The first day of the post-Thanksgiving holiday saw respectable trading. There was a continued shift away from defensive Large Caps towards more speculative (and bullish) Small Caps. There was also breadth gains in line with a potential swing low for the Nasdaq.

The S&P is just shy of a net bullish turn in technicals (stochastics and ADX left to turn).  The 50-day MA is just under 20 points away, which may take a couple of days to get there.


The Nasdaq had the best of the day's action, generating a sharp relative gain against the S&P. Technicals may turn net bullish tomorrow, offering further opportunity to build on last week's channel breakout. But the 200-day MA will offer a point of resistance, and a potential attack area for shorts.


Helping firm the swing low in the Nasdaq was the improved breadth measure. The Percentage of Nasdaq Stocks above the 50-day MA typically lead the reversal.  This has moved from just 18% of Nasdaq stocks above their 50-day MA, to 35%.


The smoother Nasdaq Summation Index also swung higher, with an important relative gain against the Nasdaq Bullish Percents. The attempted bottom looks to end the decline triggered in September.


The Bullish Percents also found support, as it had in June, around the 45% mark.  Although strong bottoms tend to originate around the 30% mark.


Finally, the Russell 2000 was able to hold last Friday's break of the 200-day MA.  Channel resistance is next.


Many markets have experienced six straight days of gains. Some form of pullback is likely to happen soon, how it behaves when/if it gets to swing lows is the real question. But breadth action suggests this is more than just a temporary low, and perhaps marks the low 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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