Thursday, May 08, 2014

Daily Market Commentary: Bullish Failure

Today can only be described as a classic collapse by bulls. Up until lunch it was plain sailing, but from the time I left work until now when I took a second look at the market, it was a total reversal. It really should have been set up for a breakout - if not today, then tomorrow - but this is looking more unlikely.

The S&P tagged resistance, but failed to get beyond it. If there is a consolation for bulls it's that selling volume was light. Why the sell off hurt it hasn't broken support, and until then the breakout is still in play.


The Nasdaq was repelled by the 20-day MA on heavy (but not heavier) volume. Shorts will be feeling confident they can push a greater challenge of the 200-day MA, using the 20-day MA as cover.


What's hurting the Nasdaq is the failure of the semiconductor index to hold what had been a breakout. Can it achieve this tomorrow? If so, it will be bullish for the Nasdaq and perhaps deliver an upside break of the 20-day MA, negating the cover the 20-day MA is providing shorts.


The Russell 2000 is offering no doubts. Bears are in control and the February swing low looks ready to break. The 200-day MA doesn't look like it's going to help bulls. If the February swing low breaks it will further reduce the probability for a breakout in Large Cap indices.


Tomorrow is another opportunity, but the Russell 2000 looks to be the controlling index. If this index undercuts the February swing low then it could cause a larger sell off in Large Caps.

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