Monday, February 28, 2011

Daily Market Commentary: Bear Traps or Shorting Opportunity?

It was another eventful day for some key markets. Large Caps were relatively quiet; the S&P added 0.5% which was enough to regain the 20-day MA but volume was light. Technicals improved with a bullish cross between +DI/-DI.



The Nasdaq managed a clear bear trap after last week's successful test of its 50-day MA. Monday's black candlestick is typically viewed as bearish, but the small decline back to 20-day MA support offers an opportunity for bulls to push on.



The premise for a bullish reversal in the Nasdaq is helped by a larger bear trap in the Percentage of Nasdaq Stocks above its 50-day MA.



But the picture for the Nasdaq 100 is not so optimistic. Monday's bearish black candlestick sat on resistance (former channel support) and offers a better shorting opportunity as part of the gap breakdown.



The semiconductor index is caught in the middle of a short play or bear trap. By Friday's closed the bulls had the edge and the bear trap was negated. But Monday saw a bearish engulfing pattern with a close on channel support. Who will have the edge tomorrow? Technicals favour bears.



Finally, the Russell 2000 offered no real edge. Monday's close left a bearish black candlestick (as with other indices), but the position of this candlestick is well above its 20-day MA. There is also no natural resistance level other than the breakdown gap from last week.



So with indices in the balance. The Nasdaq 100 is looking the most natural shorting opportunity. Whereas the S&P (and Dow) offer the best long side opportunity. Due Diligence as always.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for I offer a range of stock trading strategies for global markets which can be Previewed for Free with delayed trade signals. You can also view the top-10 best trading strategies for the US, UK, Europe and Rest-of-the-World in the Zignals Trading Strategy Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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