Saturday, February 08, 2014

Daily Market Commentary: Strong Second Day

Buyers will have been relieved to have seen a second, decent day of gains following the losses at the start of the week. Volume just about registered an accumulation day, although there is perhaps some concern the buying of the last two days has come on lighter volume than the selling which took indices to these lows.

There is also the case the swing low of February undercut the swing lows of December, setting in motion a possible shift in trend, or at the least, a new trading range.

The S&P should have enough to take it up to the 20-day MA, where Friday's gains weren't enough to stop a 'Death Cross' trigger between 20-day and 50-day MAs. The rally will find it more difficult once it gets to this convergence, which is also a horizontal resistance level.


The rally in the Nasdaq managed to take it to its 20-day MA; a 20-day MA which is till above its 50-day MA.  Traders who took advantage of horizontal support are nicely set for a challenge of 4,246. Technicals are improving, but are still net bearish.


The Russell 2000 is the only index which hasn't made it back to Monday's breakdown. The 20-day and 50-day MAs is about to 'Death Cross'. Its general weakness, and accelerating losses relative to the other indices, makes it vulnerable to shorts when sellers do return.


It's probably too much to ask for a repeat of the buying from Thursday and Friday, on Monday. The Russell 2000 will probably the index to crack first, with the Nasdaq most resistant to selling.  The current leg is probably the first step towards defining a new trading range, likely one which doesn't post new highs - at least for the first half of this year.  Play for further gains, but if you played the bounce off support from last week it's probably a good time to take some of those profits, and ride the rest.

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