Saturday, February 23, 2013

Weekly Market Commentary: Breadth Sell

While Friday saw a low relief recovery which allowed some indices finish above their 20-day MAs, there was no such bounce in market breadth.  Indeed, Nasdaq Breadth Indices have confirmed a 'Sell' - led by the Percentage of Nasdaq Stocks Above the 50-day MA.


The NYSE and Nasdaq High-Lows (EMAs) look to have also marked an intermediate top.


Best to step aside until breadth metrics aren't as overbought as they are. The Percentage of Nasdaq Stocks above the 50-day MA will likely be the first index to signal such a moment.


This will mean one more pullback for the Nasdaq before it can mount another challenge on 3,200.  A push back as far as 2,863 could be a good time to buy?


The Russell 2000 has plenty of support to play with. A move lower for this index may mean buyers come in at the breakout price, circa 868.


The S&P also has some leeway.  Support for this index sits at 1,475. Again, an orderly retreat to this level would look like an attractive buying opportunity.


I'm assuming Friday's gains are nothing more than a relief bounce. The tight, narrow channeled ascent enjoyed by the markets prior to Wednesday's sell off is never going to be sustainable, and new, wider channels are required. The question is where these channels will emerge.  There is a good chance the 'bull traps' observed in the S&P and Russell 2000 will instead become anchor points for the new channels.  But, stepping aside and watching what evolves may be the best bet for those with profits to protect.

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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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