Saturday, June 27, 2009

Weekly Market Commentary: Contrary To Action In the Indices, Breadth Weakened Further

On a week-to-week basis there wasn't much going down for the indices. The Nasdaq was able to make a positive backtest of 1,759 support, finishing the week a couple points shy of its high.

The Russell 2000 lost weekly support of 517 (just); although the doji may be seen as bullish it must be countered by the neutral long term and overbought short term momentum.

The Percentage of Stocks above the 50-day MA for both the Nasdaq and S&P collapsed; fewer stocks holding the rally mean it won't last forever. Without broader participation the rally has the same chance of success as the 2006 divergence brought about in 2007.

It should be added the technicals for the Percentage of S&P stocks above the 50-day MA switched negative to 'sell'.

The longer divergences play between parent indices and supporting breadth the likelihood the next move down will be swift and hard. Based on some of my earlier analysis a big move down sounds too expected by the market - and therefore unlikely. But I don't know how a continued rally can hold in the face of growing breadth weakness?

May lows in the daily will probably be a significant line in the sand for bulls locking in profits from positions taken earlier during the year.

Last chance to enter to win the Trader's Business Plan prize of a free psych test and free access to the trading plan development program. Retail value $398

[1] Register at Zignals.
[2] Go to Charts and select a stock (you will be prompted to download Microsoft Silverlight)
[3] Click on the YourCall Icon

[4] Enter a Call by giving a stop and target price; make sure the Time Period is set to Short (month)
[5] Enter as many calls as you like up until the end of June; these can be long or short signals
[6] Send me your Zignals Userid so I can track the calls made ( or post it in the comments section of this post. In your email make reference to the competition.
[7] The Zignals member with the stock giving the highest return from either a target hit or expiration after 22 trading days will win the prize. Only stocks or FX prices listed on Zignals qualify for entry (no pink sheet stocks). The announcement of the prize winner will be made at the end of July.

Good luck!

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, stock charts, watchlist, multi-currency portfolio manager and strategy builder website. Forex data available too.