Monday, October 06, 2014

Low Volume Rebound - Relief Rally Done?

The easy work for bulls is done, now the real graft begins if overhead supply is to be consumed. A couple of indices sit at resistance levels more suited to short positions, but shorts haven't had too many opportunities beyond the recent 'bull traps'.

The Nasdaq is perhaps the most vulnerable. It tagged former support turned resistance with the 50-day MA just overhead.  A another leg down to test 4,325 would appear more likely, although a strong start on Monday would put a short position on hold.


The Nasdaq 100 is also vulnerable, although it didn't finish Friday at channel support turned resistance, and did close above its 50-day MA and key support of 4,000. There isn't a short position here yet, and longs may get some joy for another day or two of gains.


Helping the Nasdaq 100 is the Semiconductor Index. It's trading in an area I would look for a bounce to develop. It doesn't mean it will, but there a few convergence points to help bulls at this point. Supporting technicals actually favour more downside, so this is more of a price-based bounce than a technical one.


The Russell 2000 has confirmed the 'bear trap'. I would not be surprised to see this index make another pass of the 200-day MA, but longs wouldn't want to hold for too long if 1,077 is violated.


The S&P is caught in a bit of a no-mans land. It's below its 50-day and above its 200-day MA. Not excited about it either way: a push above 50-day MA would make longs more comfortable, but then 1,987 resistance comes into play. A stall out at the 50-day MA would favour short activity for a push back to 1,900.


As a final note, Nasdaq breadth is about to make its first pass at oversold levels with the Percentage of Nasdaq stocks above their 50-day MA, but other breadth metrics are more neutral, although bounces have occurred in the past at current levels for other breadth indicators, eventhough these aren't oversold.


If bulls make a bright start today (and futures are looking good), then the resistance levels for the Nasdaq, S&P and Nasdaq 100 (to a lesser degree) could be breached quite early. It would then be important for these levels to hold for the day, and certainly finish with a close above them. Any fade out during the day or late afternoon would give shorts an advantage into Tuesday.



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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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