Monday, May 25, 2015

Tight Trading Covered Last Weeks Action

Friday didn't bring a flourish of buying or selling into the long weekend, so it's up to Tuesday to price in weekend news. Opportunities are available for both bulls and bears.

Bulls will be looking to the S&P to push from 5-day days of tight, sideways pattern in an effort to put some distance to 2120. Technicals are mixed, with a strong 'buy' in the MACD and bullish momentum, offset by a 'sell' trigger in On-Balance-Volume and some mixed action in the ADX. One point of note is the bullish cross in relative performance against the Russell 2000.


In the bears camp is the Nasdaq. While it has managed to hold 5038 support it has resistance at 5096 to contend with. This may give bears a chance to sneak a quick trade in, looking for a move to retest support of what is increasingly looking like a rising (bearish) wedge. With the exception of the ADX, all supporting technicals are bullish. In addition, the index is outperforming the S&P. Collectively, there may be enough to keep shorts honest, as buyers look to drive past 5096 and on to new highs.


Although bears can also look to the Percentage of Nasdaq Stocks above the 50-day MA as a marker for further weakness. Note the reversal from 54% resistance; the way this is heading it won't be long until there are fewer than 50% of component Nasdaq stocks above their 50-day MA.


Bears may also be looking at the Russell 2000. There is a potential new bearish channel taking shape with the 50-day MA providing the current support. The channel hasn't been confirmed (3 touches of resistance are required), but if Tuesday opens weak then shorts will be clustering their stops around 1,261.  Technicals are bullish, but not strongly so.


Shorts may have the easier time of it on Tuesday, but any profit taking which takes hold will probably run into buyers sooner rather than later. The slow drip action of markets is favouring bulls, who have little incentive to sell. It would probably take 3 consecutive big red candles to put bulls in a position where they would feel the need to sell rallies. It's all very tight at the moment.

You've now read my opinion, next read Douglas' and Jani's.

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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. I do a weekly broadcast on Friday's at 13:30 GMT for Tradercast, covering indices, FX and gold, silver and oil - all are welcome! You can read what others are saying about Zignals on Investimonials.com.

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