Wednesday, January 29, 2014

Daily Market Commentary: A Bearish Twist

It proved to be a tough day for bulls. Shorts are unlikely to have been the cause of today's losses, although some may not have wasted time jumping on board. Apple's poor results were probably a cue for some long-term holders to bail out, although Fed action and international currency woes were also put forward as excuses, but collectively, this caused the nascent rally to breakdown.  Volume climbed in confirmed distribution, setting up tomorrow for more of the same.

Technical weakness in the S&P intensified, although bulls will look to a third day of held support despite the 1% loss on the day. Aggressive longs could look to buy this support on Thursday with a relatively tight stop available. Again, if there is any downside follow through on today, you probably wouldn't want to hold long into the morning session if no fightback was observed. However, a gap down at the open would be an interesting long opportunity.


The Nasdaq was unable to hold its 50-day MA, although the inverse hammer/doji(?) is a more bullish candleline than might what otherwise be expected. A gap upside tomorrow morning could turn this into a 'bullish morning star', offering a good set up for a longer rebound.


The Nasdaq 100 too is offering a nice long opportunity at channel support. Stops can go on a break of channel support.


The semiconductor index has also done well to stay above its 50-day MA. This might be the best index to trade long on Thursday.


The index to put the aforementioned long opportunities into jeopardy is the Russell 2000. Today, it closed below its rising channel, becoming one of the first indices to lose this crucial support level.  It will be a tentative day tomorrow for Small Caps, as action here will confirm or deny the long side opportunity in the Nasdaq and Nasdaq 100. Those looking to buy will want to see a 'bear trap' where the index finishes the day back inside the boundaries of its rising channel.  It will be a tall ask for the index, but not impossible.


Tomorrow may be about bargain buying in the Tech averages, and the Nasdaq 100 in particular. Whether it plays as a day trade, or a swing trade, will likely depend on how the Russell 2000 performs. If the latter index fails to make any headway on Thursday, it will be hard to convince buyers to hold positions in other indices long enough to make the trade worthwhile.

In the case of further weakness in the Russell 2000, the next key support level will be the 200-day MA.

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