Wednesday, July 27, 2011

Daily Market Commentary: Nasdaq 100 Bull Trap

It was a bad day all round for the indices, but the real loser was the Nasdaq 100.

The Nasdaq 100 was the market leader, breaking to a new multi-year high and offering a platform for other indices to follow suit. Unfortunately, todays' selling left a sizable bull trap with a 'sell' trigger in the +DI/-DI. The Nasdaq 100 finished at its 20-day MA, but no other index has found support here. Significant distribution suggests selling will continue down to its 50-day MA.



The Nasdaq suffered three 'sell' triggers in its technicals; MACD, OBV and +DI/-DI. It also bull trapped for the third time. Not to mention the clean loss of 20-day MA support. Have I left anything out? Bad day for Tech.



The S&P got hit with multiple bearish turns; higher volume distribution, a clean loss of 20-d and 50-d MA support, and 'sell' triggers in MACD and on-balance-volume.The 200-day MA is next support level.



Finally, the Russell 2000 took one of the biggest hits on the day. It cleanly sliced through its 50-day MA and is only a few points away from a test of its 200-day MA. The best thing for bulls is the larger trading range which keeps today's losses in check.



The risk tomorrow is for downside follow through. The problem for bulls is today's volume; it's going to be hard for buyers to consume the overhead supply. I suspect tomorrow will see tighter trading around Wednesday's low.

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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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