Monday, February 03, 2014

Daily Market Commentary: Buyers Go Into Hiding

The battle between bulls and bears finally resolves itself in favour of bears. The end result differed by index, with some performing 'better' than others. Bad economic data was blamed for the fall, but this is a rally long in the tooth, and in need of a decent move lower to address the complacency built into this rally.

The S&P decisively sliced through 1,770 support, barely pausing at a level bulls had, up until today, defended with relative ease. Selling volume climbed into yet another decisive distribution day. The 200-day MA is looking very enticing as a test level, although the market is oversold and short and intermediate term levels.


The Dow is the weakest of the Large Cap indices.  It's the first index to undercut its 200-day MA. Next support is down at 14,760, but a rally to confirm the break of 16,150 is more likely to happen before there is a final sweep to 14,760.  Today's close counted as a 7.3% loss from the high, so it hasn't hit the minimum 10% drop to register as a bearish swing. Watch for an upcoming 'Death Cross' between 20-day and 50-day MAs, this will put the 20-day MA as the attack point for shorts on any subsequent rally, and before 16,150 is reached.


The Nasdaq 100 finished with a decisive break of channel support. The fall didn't push intermediate stochastics [39,1] into an oversold state, suggesting this decline has more to come. The measured move target is down around 3,380, which should be enough to turn the index oversold.


The Russell 2000 was stung for a whopping 3%+ loss.  It too is looking at a quick move to its 200-day MA as the relative loss (to the Nasdaq) accelerated.  There is very little love for speculative small caps, and this is unlikely to change over the next few days.  The 1-day loss is sizable enough to suggest a 'buy' at the open could offer a nice day trade: a rebound to test the 1,120 breakdown should not be too far away.


Declines from January highs aren't yet enough to register a true bearish correction, but the losses are enough to turn the narrow trading of last week into overhead supply for any subsequent rally. Tomorrow may see some value buying from the open, but look for sellers to appear as indices make it back to Friday's lows.  

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