Monday, September 09, 2013

Daily Market Commentary: Nasdaq Breakout

A double confirmation for bulls: a negation of the August 'bull trap' with today's breakout and a failed measured move target lower. Technicals are all bullish, although the ADX is below 20, indicating a trendless environment. However, I suspect today's breakout will change this.


The Nasdaq 100 had it better: it had earlier broken from the prior channel and today cleared the 'handle' formed from the channel breakout. Momentum (long) players will probably find the best risk:reward here.


And feeding the rallies in the Nasdaq and Nasdaq 100 is the recovery in the semiconductor index.  The semiconductor index enjoyed sharp gains relative to the Nasdaq 100, and these gains have fueled the rallies in the Tech indices.  Technicals are net bullish.  However, it now finds itself at a convergence of resistance, emphasised by the former channel support line. If it's rebuffed at these levels tomorrow, then this will likely slow the advances in the Nasdaq and Nasdaq 100.


The Russell 2000 also generated a breakout from a "W" bottom. This despite yesterday's 'Death Cross' which I suspect will be short-lived. Technicals are net bearish, although a MACD trigger 'buy' has set them on the road to recovery.


The S&P had its slice of the pie. Volume was a little lighter and its gain underperformed relative to the Russell 2000 and Nasdaq, but it did manage a close above its 50-day MA and a possible "W" recovery.


While the underperforming Dow has at least managed a picture perfect support channel bounce. Note the new 'buy' signals for the MACD and On-Balance-Volume.


Today's action is likely an early indicator of a rally extension. Certainly the breakouts need to hold over the next day or two, otherwise 'bull traps' will emerge and shorts will get aggressive. Should 'bull traps' make an appearance, then the channel bounce on the Dow may be the better long-side option with a stop on a loss of channel support.

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