Weekly Market Commentary: Bull Traps in Nasdaq and Small Caps
There were two significant reversals on the weekly time frame from my last update. First up is the bull trap in the Nasdaq; defined by 2,818. The break above, then below this level occurred within a broader bullish channel. It's not a disaster for bulls but it's a clear shot across the bows. The test of rising channel will be a more important battle for bulls.
The Nasdaq 100 was not as susceptible to the bull trap as it's sister Nasdaq. The threshold for support is 2,217 which is still a good 65 points away. Losses of the past month are more likely to represent a broadening of the 9-month trading range - but what happens elsewhere will ultimately influence if 2,217 support can hold.
The Percentage of Nasdaq Stocks on point-n-figure 'buy' signals dropped below the bullish 60% mark to a more neutral stance.
While the Percentage of Nasdaq Stocks above the 50-day MA is down at 34%, but well away from the 5% lows of October 2008. Reaction lows typically emerge below 30%.
The Russell 2000 is in a similar state as the Nasdaq; stuck with a bull trap but with a bullish channel to defend.
But the bull trap in the S&P carries less weight because it's associated with minor resistance. However, rising channel support is still significant.
The cyclical bull market is intact and the intermediate term advance has slowed, at a minimum, to a trading range. Rising channels and/or the early 2011 reaction low are a more significant area to defend.
Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. 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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