Thursday, October 09, 2014

One Step Forward, Two Steps Back

It feels like 2009 again, except markets are still above 200-day MAs, and less than 10% from its highs (bar Small Caps). After the relative mediocrity of summer trading, things look to have been flipped on their head.

Except, that things haven't really changed. The S&P hasn't yet tested the August swing low, and will soon have the 200-day MA to offer support. It has only dipped into oversold territory, which suggests a good chance for further losses. With wide range days it's hard to pick entry/exit points, although I would favor a series of inside days from here: a coil would set up a swing trade on a break, but it may take a few days to form.


The Nasdaq is in a similar position to the S&P, with the same support targets in play. It also carries a similar technical picture.


The Russell 2000 negated a second 'bear trap,' and of the indices is the most bearish.  It sits 7.2% away from its 200-day MA, which is far enough away to make it a relatively attractive 'buy', although a 'strong buy' kicks in when the index drops at least 14.8% below its 200-day MA (see table at the end).


The semiconductor index is also struggling after a period of strong performance. The trendline break is pretty much confirmed it's now a question as to whether the August swing low and/or 200-day MA will offer support.


If the first hour of trading is weak tomorrow, then Friday could see another big loss. Any gap higher will likely result in an inside day, and there is plenty of room for maneuver for this to happen. My hunch says the latter, but the market will ultimately guide.

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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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