Wednesday, October 15, 2014

Bullish Engulfing Pattern in Russell 2000 and Semiconductor Index

While I think markets are close to a swing low, I'm not entirely sure the bottom is there yet. The wide range day and spike lows are setup for a walk-down retest of these lows over the coming weeks. However, today was a step in the right direction for a near term bounce.

Best of the action was in the Russell 2000 and Semiconductor Index. The Russell 2000 finished with a sizable bullish engulfing action that finished the day next to channel resistance. Tomorrow is set up for an upside channel break.


The Semiconductor Index also closed with a bullish engulfing pattern. For those who took advantage of morning weakness to buy the bullish harami cross will have done well - although it would have taken a stiff resolve to have done so in the face of big opening gap downs in the Nasdaq and Nasdaq 100.


The S&P instead finished with a bullish hammer, but this counted as a fail on the bullish harami cross. A bullish hammer is a long-side play on a move above 1,874, but with a stop on a loss of 1,820 it's a poor risk:reward with upside targets of 200-day and 20-day MAs. A low volume retest of 1,820 would be a more attractive long play.


The Nasdaq and Nasdaq 100 had perhaps the roughest day.  However, the Nasdaq 100 has only just tested its 200-day MA, and the Nasdaq is still too close to its 200-day MA to be considered oversold. Yes, breadth metrics point to an upcoming low, but I would like to see the Tech averages give back a little more.



For tomorrow, look for some upside follow through from indices with a near term goal of reaching 20-day MAs.  Over the longer term, I would be looking for an Adam-and-Eve bottom combined with a bullish divergence in aforementioned breadth metrics. Of the indices, the Russell 2000 trades at the best discount, although Semiconductors should respond well to some loving.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com, and Product Development Manager for ActivateClients.com. You can read what others are saying about Zignals on Investimonials.com.

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