Thursday, February 21, 2013

Daily Market Commentary: Higher Volume Selling

It had to happen sooner, rather than later. Sellers made their presence felt as they pushed markets towards 20-day MAs. A similar sell off occurred in early February and the market made an immediate recovery.  I would expect 20-day MAs to be a point of entry for buyers. The question is: will buyers outnumber sellers?

The Russell 2000 finished a few points above its 20-day MA. The selling was enough to reverse the whipsaw 'buy' signal in the MACD. The likelihood is for buyers to stall things for a little at the 20-day MA, but the 50-day MA seems a more appropriate place to trade a meaningful bounce.


The Nasdaq finished just below its 20-day MA. Its 50-day MA isn't too far away. Unlike the Russell 2000, its gains for 2013 have been more modest, so there are more support areas to work from.  Given this, I would expect any sell off on the broader market to be less impactful on the Nasdaq than for the Russell 2000 or S&P.


The S&P is caught between the Russell 2000 and the Nasdaq.  The 20-day and 50-day MAs are closely tied, but there is a gap between 50-day and 200-day MAs.  As for the Russell 2000, the 50-day MA is looking the better spot to trade a bounce.


Next few days could be scrappy as buyers attempt to defend 20-day MAs. I would expect a more robust defense at 50-day MAs, but yesterday's action was a long time coming.  The selling will have offered some relief, taking pressure off an overheated market. A few more days like that would settle things down and offer better risk:reward opportunities. 

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. You can read what others are saying about Zignals on Investimonials.com.

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