Wednesday, October 08, 2014

Market Bottom or False Bottom?

There was a bit of a scramble on the release of the Fed minutes as panic buyers jumped into the market. It's my opinion, with the exception of the Russell 2000, markets hadn't sold off enough to leave a strong bottom, but today's lows will set up a point of defense for any subsequent selling.  Large reactions like today typically come back over subsequent days, but there is plenty of room for wary bulls to take a bite if there is a walk back to the lows.

The S&P gain counted as a bullish engulfing pattern.  Tomorrow it will run into the 50-day MA, and potentially the 20-day MA too. It may even get to 1,987, which had looked so unlikely after yesterday.


The Nasdaq enjoyed a bigger relative gain as it too finished with a bullish engulfing pattern. It will find itself testing former support turned resistance very soon.


The Russell 2000 is attempting a second 'bear trap'. It will likely get scrappy from here, but this is better news for bulls willing to ride the switches around 1,090.  A measured move lower from 1,090 would bring 970 into play, with the 20-day MA the first of a range of upside targets. The die has now been cast back inside the bulls court. Note the bullish divergence in the CCI.


The semiconductor index has returned to former support after defending the August swing low. Tomorrow will see what form of tussle this will take, but even the slightest bullish advance will return it above this support level.

If today's buying is genuine then we should see overhead resistance levels (former trendlines and/or moving averages) tested soon - if not tomorrow. However, I suspect there was a high degree of panic buying and markets are likely to give back some of today's gains.


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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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