Daily Market Commentary: Too Much For Shorts?

When markets finally opened, Futures had pushed them well away from yesterday's close. The panic continued through the day despite a weak bounce in morning trading. Late day buying failed to mount a challenge to close the breakdown gap. The very weak open probably kept shorts out of the market, but there was no shortage sellers, many of whom probably bought over the past two months. However, any rally into today's gaps is likely to see shorts turn up the heat.

The Russell 2000 gapped past the September reaction low and the more important August low. However, a rally to close the gap seems more likely. Look for short activity to pick up around 660. Technicals fell back into net bearish territory on MACD trigger 'sell'.

via StockCharts.com

The S&P sliced through channel support on heavy volume distribution. Technicals returned net bearish on a MACD and On-Balance-Volume 'sell' trigger. Unlike the Russell 2000, it's hanging on to the August swing low. The sequence of four losing trades is likely to lead to a couple days of gains but I would watch for shorts activity if it makes it back to former channel support turned resistance.


via StockCharts.com

The Nasdaq managed to escape the worst of it, not because it suffered the least amount of selling, but because the gap down was able to find support at the channel. It even managed to dodge a MACD trigger 'sell'. If there is a rally to occur tomorrow then the Nasdaq (and Nasdaq 100) are the indices most likely to benefit.

via StockCharts.com

Speaking of the Nasdaq 100, it may have lost consolidation support, but it does sit at a support level. Technicals are not as bearish as other indices.

via StockCharts.com

Given European turmoil the bulk of market movement may be priced in by the open - so positioning for the day may be difficult. If there is a gap higher it will be important for indices to regain the September swing low. Markets which fail to do this will have to contend with shorts piling in at newly formed resistance. Buyer beware.

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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 Trading Strategy Marketplace Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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