Sunday, May 02, 2010

Weekly Market Commentary: False Breakouts

A week when resistance came to the fore (or at least false breakouts). Tech averages suffered the most; the Nasdaq pinged back off 2,535 and lost support from last week's breakout



The Nasdaq 100 had a clearer bull trap, reversing below 2,022 cleared last week.

Nasdaq 100 Index


The Percentage of Nasdaq Stocks above the 50-day MA honored the bearish divergence established at the start of January 2009. How far will it fall? In the summer of 2007 this breadth indicator dropped below the 30% threshold that typical marks bottom but may have instead forewarned of a top - will the current decline break below 30%?

Nasdaq Percent of Stocks Above 50 Day Moving Average ($NAA50R)


The S&P reversed in a no-mans land with rising support still to come



The same was true for the Russell 2000



After the weeks of gains its unlikely we are going to see a sudden reversal. Market tops take time to evolve, so even a sharp drop here will probably lead to an equally sharp recovery to test the past high. Look for weakness to continue but by the latter part of the week bulls may have regained control - even if such gains are to be short lived.

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