Sunday, February 07, 2016

Bears Break Deadlock

A quick post before the Superbowl begins. Friday's action was very disappointing if you were in the bullish camp; poor jobs data contributing to the malaise. However, investors can view this as another buying opportunity, with the Nasdaq clocking the 10% percentile of historic weak prices dating back to 1971, and the Russell 2000 making fast work of a push back to 958. Again, it's not about investing everything at once, but perhaps using the coming year(?) to build long term positions. I would be happier to see a 40-60% trim from highs - keep an eye on my bottom watch table, but this is the kind of action which helps reset the bulls count.

The S&P registered a clear break of rising trend. Volume was lighter, so it wasn't necessarily a panic sell. And while it could be viewed as a breakown, the glass half full crew would see this as a drop back into the prior consolidation. The disappointing aspect is that the previous Friday's buying failed to follow through higher.


The Nasdaq experienced higher volume selling - a clear marker for distribution.  While Large Caps didn't experience panic selling, Tech stocks weren't as fortunate.


The Russell 2000, squeezed against former support turned resistance and 'bear trap' support, cracks and pushes lower.  The worry from here is that Friday's action will trigger a measured move lower. A 40% loss from high would bring it to 778, still 200 points away. However, a measured move from 1,160 to 958, tagged to 1,037, would deliver a target around 835 - which isn't a million miles away from a 40% trim from highs.


One index showing signs of life (for bulls) is the Dow. Note the sharp relative advance against the Nasdaq 100.  It was the only index not to register a breakdown on Friday.


For next week, it will be about clawing back the losses of Friday and holding on to those gains. Unfortunately, it's hard to see confidence returning and it may require a break of January swing lows - and a failure on the part of bears/shorts to jump in - before buyers are prepared to return.

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 also trade on eToro and can be copied for free.

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