Sunday, October 31, 2010

Weekly Market Commentary: Market Creep

Markets finished the week slightly higher as breadth moved contrary to market gains.

The S&P barely scrapped a gain as momentum cracked into overbought territory.



Although S&P breadth has shifted to the downside. See how NYSE Summation Index reversed before it managed a challenge on declining resistance.



This reversal is clearer in the Percentage of S&P Stocks above the 50-day MA. If ever there was a call for a top in the S&P, this it it:



The Nasdaq is fast approaching a 2008 reaction high c2,535. Stochastics are overbought, but not quite the levels of late 2009 / early 2010.



The Nasdaq 100 has actually managed to get to the second of two reaction highs in 2007! Stochastics have also reached the rich levels of 2009/2010. Can this be true! Watch Nasdaq 100 for leads next week.



But as for the S&P, breadth for the Nasdaq is weakening. Percentage of Stocks above 50-day MA has peaked and heading lower.



And the Nasdaq Summation Index has reached a possible resistance level.



So, given the potential for downside (i.e. markets at resistance) and the toppy nature of breadth, it's likely we will see markets follow breadth's lead lower. Election (un)certainty will influence but the likely outcome for Republican victory should be priced in - unless Tea Party candidates do unusually well, then it could get ugly.

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