The S&P rallied as far as its 50-day MA before bears pressured, ending with some shorts profit taking to return some of the losses. \The S&P is enjoying a sharp relative advantage against the Russell 2000, but the 'spinning top' candlestick is a 50:50 play.
The Nasdaq returned with all net bearish technicals along with distribution. The MACD and Stochastics offered fresh 'sell' triggers. Friday's trading marked a bearish engulfing pattern, which often leads to follow through selling. There was also a relative performance loss for the Nasdaq against the S&P.
The Russell 2000 has been underperforming lead indices since early September, and this underperformance has left it working a fast-track retest of August lows. Bulls may look to attack this index first if further losses are delivered.
One of the better performers was the Semiconductor Index. It still has a long way to go to get out of its funk, but Friday was not the worst.
Market breadth is also reversing after an early bounce from oversold conditions. Will this create a bullish divergence relative to the Nasdaq? For this to happen, August lows would need to be taken out in the Parent Nasdaq, but comparable lows in breadth indices hold (or are best not challenged).
For Monday, watch pre-market for leads. A higher open may encourage sellers to make a second run. A lower open may offer a case for sellers exhaustion and set up a temporary - but trade worthy - bounce.
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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