Saturday, May 03, 2014

Daily Market Commentary: Bulls Dither in Dow

A bright start to the day soon faded as the attempted breakout in the Dow stalled. Volume climbed to register distribution in the Dow, but the end-of-day point loss was relatively mild.  Monday offers a chance for a new breakout opportunity, but given Friday's reversal there may bearish follow through in morning trading. Look for a rebound from the 20-day MA.


The S&P tagged resistance with the 20-day and 50-day MA about to 'Death Cross'. On the bullish side, technicals are all positive, and Friday's selling volume was light. Like the Dow, there could be some follow through downside from the open, with the converged MAs available to offer support.


In the absence of nearby resistance or support, the Nasdaq traded a narrow inside day. Swing trades could look to trade Friday's high/low break, with a stop on the flip side.


The Russell 2000 was more bearish. The inverse hammer reversed off the 20-day MA in a clear marker of supply. This could lead to yet another challenge on the 200-day MA. Each successive challenge weakens the moving average as support, making for a good shorting opportunity: short loss of Friday's low with a stop above 1,138.


Prior to Friday, it was a 50:50 as to whether the Dow would breakout before the Russell 2000 would breakdown. Now, it looks more likely the Russell 2000 will lead down, dragging the other indices with it. The Russell 2000 offers the clearer (short) trade, but bulls aren't out of the game yet. Watch for a new breakout opportunity in the Dow, although a weak open (gap down) on Monday would likely kill that chance.

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