Sunday, October 23, 2016

More of the Same: Small Bearish Wedges

Friday had bears rubbing their hands in glee as it finally looked like momentum was shifting their way, but bulls again stepped in to take markets back to their open price, and in some cases, higher. Volume did climb to count as distribution, but with the small price changes for these indices

The S&P remains tightly bound to the rising wedge. Swing traders have the best chance to profit; market coiling action often leads to a directional trend - either a continuation down or a counter break higher, stop on the flip side. Technicals suggest a move lower.


The Nasdaq was one of the indices to close higher, however volume was lighter than other indices which registered declines. The relative performance of the index continues to out perform the S&P. However, the 50-day MA is playing as resistance and the bearish wedge, in its current form, is a bearish continuation pattern.


The Russell 2000 is playing a bullish tune. Friday finished with a bullish doji/hammer off key 1,205 support. Technicals are still negative, but price action points more in bulls favour based on current available action.


Dow action remains scrappy (disclosure: still holding an intermediate-time-frame short position). Bearish technicals hasn't really expressed itself with weaker price action. The fresh 'buy' signal (weak, because it triggered below the zero line) may yield a new rally, although stochastics and directional index will take more than a couple of days of gains to turn bullish.


One index to watch is the Semiconductor Index. It has been a key market leader performer for 2016, but there is a chance this may be changing. The current bearish pattern is hugging its 50-day MA as a support line. The swing low from early September is an initial target.


For Monday, bulls can look to the Russell 2000, bears can look to any index shaping a bearish rising wedge (S&P, Nasdaq and Nasdaq 100), although the Semiconductor Index might be the most rewarding.

You've now read my opinion, next read Douglas' blog.

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Dr. Declan Fallon is the Senior Market Technician for ChartDNA.com, and Product Development Manager for FirstDerivatives.com. I also trade on eToro and can be copied for free.
 
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