Monday, April 07, 2014

Daily Market Commentary: Selling Overshoot

Buyers offered very little on the day, which was somewhat unexpected given large sell offs in recent months have found it hard to gain traction. What happens during the next rally is of greater importance to bears than the extent of this decline - bears need a lower high to suggest there is something more than just a trade of a couple of days.

The S&P traded down at March lows, part of a tight consolidation within a broader February-April trading range. Bulls may sniff an opportunity in this index tomorrow, as the March lows also converge perfectly with the 50-day MA. If there is a doubt it's that stochastics are not oversold, which may make any bounce short lived.


The Nasdaq has the look of an oversell. A redrawn channel line still counts as a break of support. Watch for a 'bear trap' tomorrow, particularly on a late afternoon rally; a push back to one or other of the drawn channel lines is a decent long-side opportunity.  Unlike the S&P, stochastics are almost oversold: one more down day may be enough to throw these over the edge.


The Russell 2000 is another index presenting itself as a possible 'bear trap' opportunity.  Technicals turned net negative, although stochastics are not oversold.  In this situation, a push down to the 200-day MA would be a more attractive buying opportunity, but a snap rally won't be far away - and will likely occur before the 200-day MA is reached.


The one index to maintain its bullish technical picture, despite the sell off, is the semiconductor index.  A decline to the 50-day MA looks a distinct opportunity with a strong opportunity for a push back to highs. Bullish momentum is very strong here (for an index which spent many years in the doldrums).


For Tuesday, look to buy a push on weakness, either in the first hour of trading (an oversell on the last two days), or a retest of this low, likely before the last hour of trading kicks in.  Markets are ready to trade a low.

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