Daily Market Commentary: Distribution Returns

It was a second day of heavier volume selling in four for the S&P, and the fifth day of distribution since the last accumulation day. The breakout of 1,987 was undercut by Friday's close in addition to a finish below the 20-day MA. Bulls still have room for maneuver with the 50-day MA next in line for a test; even a modest rally Monday would be enough to return the S&P above its breakout.  The higher volume selling is a concern, but not a deal breaker for bulls...yet.

The Nasdaq had a better Friday. While it also suffered a loss, it didn't  undercut its mini-trading range or close below its 20-day MA. It hasn't suffered the same level of distribution as the S&P, and relative strength is very much in its favor. This is still an option for longs on Monday.

The Russell 2000 came back off channel support turned resistance, although it's above both 50-day and 200-day MAs.  There is still an opportunity for bulls, although with the breakdown confirmed it may be best to see if the 200-day MA holds on a test.  Look for this test on Monday.

The semiconductor index continued to pull away from its test of 651. Friday finished with a close below its 20-day MA, but again, a small gain would reverse this break.

However, Nasdaq breadth is stuck in the middle of a broader decline. This suggests a significant trade low is on the way, but is not here yet.

In the meantime, bulls keep their edge in the near term.

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