Tuesday, January 27, 2009

Nasdaq needs to crack 50-day MA; Russell 2000 toying with former broadening wedge resistance - new support

With large caps underperforming it is up to tech and small caps to lead the market higher. Money flow has been relatively good for the Nasdaq but yesterday's 'ping' off the 50-day MA shows there is much work to do.

Drawing a new up channel for the index leaves a tight squeeze against a possible breakdown, or potentially some fresh air up to 1,700. A downward break sets a target of 1,300, but as Richard Lehman said yesterday, support/resistance tests rarely play to market expectations; prospective buyers may decide to step in around 1,350 or wait for 1,250 before joining the fray. But a break of the 50-day MA will give bulls reason for optimism.

Double bottom watchers (November retest) should keep an eye on the Transports. Yesterday's doji keeps the buyer-seller battle in the balance, but the tight trading will result in a substantial 1-day move depending on which 4-day high/low breaks.

What goes for the Nasdaq goes for the Russell 2000 too. The Russell 2000 is likely to move before the Nasdaq, so take leads from here. The former resistance of broadening wedge is making an attempt at been a focus of support; can it hold?

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website