Thursday, October 01, 2009

Stock Market Commentary: Big Losses - 50-day MAs Next

It has been a while since there was a days selling like today's. The Nasdaq suffered a break of the rising black channel in addition to the crack through the 20-day MA on heavier volume distribution.

The Dow finished very close to its 50-day MA. Given the day that it was I wouldn't be surprised to see a gap down below this MA (Friday) before the fight at the MA develops.

Small Caps broke from their July-October channel and 20-day MA leaving 50-day MA then August reaction low to test. Bearish cross in the directional index between -DI and +DI.

The greatest damage was done to the semiconductor index. Gone from defending a breakout to a clear breakdown. Bull trap firmly in place and the 50-day MA may not be enough to help.

Whereas yesterday could have gone either way today was a clear message to bulls to stepaside. We haven't seen a significant test of the 50-day MAs since June so expect prices to trade around this key MA for the next few days as bulls and bears line up their troops. A substantial move down would be welcome by bulls as it would help take some of the excess heat out of the market. Tests of indices' 200-day MAs would make for an attractive pullback and buying opportunity - assuming today's weakness represented the start of such a move down.

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.