Weekly Market Commentary: Breadth Overbought Once More

The push from the April swing low (in the Nasdaq) was premature in breadth indicators had not reached oversold conditions, so it hasn't taken the long for breadth to again become overbought.  However, the recent similarities to March suggest this may prove nothing more than a pullback of the larger advance, although more downside is needed to at least take the heat out of the breadth indicators.  Ideally, a more substantial decline would push breadth indicators into a situation where a tradeable (buy) low would emerge, but this will take a while.


The Nasdaq has slowed its advance, but maintains its breakout. It's going to take a big swing to kill the bull trend.  At the moment, what's happening is a blip in the larger bull trend.


The Russell 2000 remains pegged by channel resistance. Shorts will be looking for a move to channel support, which is the favoured play at the moment.


It's a similar story for the Dow Jones Index, which reversed from channel resistance to close at a weekly low.


And the S&P Bullish Percents have reversed from a maximum of 90% of S&P stocks on 'buy' signals. Things are likely to remain rocky for the S&P (and Dow) for another few weeks.


The market remains in pullback mode, although profit taking is a better option than outright shorting, but if looking to short, the Russell 2000 and Dow remain the best bet: Large Caps are looking more vulnerable than Small Caps.

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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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