Wednesday, August 07, 2013

Daily Market Commentary: 'Bull Traps'

Today's losses set in motion potential 'Bull Traps' for the indices. The S&P and Nasdaq were dropped back inside their rising channels, although the Nasdaq 100 remains above its resistance breakout.

The S&P also finished with a MACD trigger 'sell' (which also exhibits a bearish divergence to compound the negativity). Aggressive shorts can play for a push to the 20-day MA with likely follow through to the 50-day MA. Stops for a push to the 50-day MA can be placed above 1,709; i.e. above the 'bull trap' high.


The Nasdaq 'bull trap' hasn't the bearish MACD 'sell' of the S&P, although it does offer more room to the 20-day MA if looking to play this index to the short side.


The Russell 2000 also gave up ground. As it didn't breakout like Large Cap and Tech indices it effectively maintained channel resistance. Tomorrow should see a key test of 20-day MA support. A loss of this moving average will be bad news for all the indices.


One index which may play as a barometer (at least for the Tech averages) is the Semiconductor index. It's effectively range bound in neutral technical territory.  Watch how it acts at its 50-day MA, for it has already lost 20-day MA as support.


For tomorrow, short plays are favoured, but it will be swimming against a larger bullish trend. A loss of 20-day MAs would open up the short side plays though.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com.
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