Saturday, May 17, 2014

Daily Market Commentary: Late Rally Stalls Bears

Friday offered bulls something to hold on, but damage from Thursday remains dominant.

The S&P held its 50-day MA on buying volume below Thursday's. The buying wasn't sufficient to reverse the MACD trigger 'sell' or the 'sell' between +DI/-DI.  Aggressive buyers may want to take another bite, but the 50-day MA likely won't survive another test; so there isn't much wiggle room.


The Nasdaq also found support at the coiling consolidation, but with the index caught in the no-mans land of between the 200-day and 50-day MAs it's hard to see a definitive advantage to bulls or bears until one of these MAs break.  Bears edge the technical picture, thus favouring a downside break.


Nasdaq breadth hasn't yet entered strong oversold territory, although breadth weakness is approaching levels last seen in the latter part of 2012, which proved to be a major swing low.


The semiconductor index is trying to negate the 'bull trap' generated by the failed consolidation breakout. Technicals are siding with bears, which makes it harder for bulls to fight the tide against them. The long term trendline from the December/February swing lows looks the best place for bulls to make a stand.  Aggressive longs should use, last Thursday's low as the risk measure, but weakness on Monday will probably be enough to kill this trade. A weak semiconductor index won't help the Nasdaq or Nasdaq 100.


Finally, the Russell 2000 continued to make its stand at the February swing low.  The bullish engulfing pattern sets up for a positive Monday, but an upcoming 'Death Cross' between 20-day and 200-day MAs will probably limit upside to the 20-day MA.


Friday's late surge should see some follow through on Monday. However, it will be hard for bulls to get longer term momentum - particularly in the Russell 2000 - as overhead resistance remains close-by.

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