Daily Market Commentary: 'Bull Traps' Under Pressure

Today's massive rally added about a week's worth of gain in just one day. Volume surged to mark the first true accumulation day since indices broke above 200-day MAs at the end of October. In a rare sequence, it has taken only three days to reverse seven consecutive days of losses. Has Santa made an early delivery?

The S&P rallied through 50-d and 20-d MAs to finish at wedge resistance. Above lurks the 'Bull Trap' divider at 1,260. Technicals have seen some significant improvement with bullish crosses of on-balance-volume, +DI to -DI and Stochastics; a great day for the index. To break out of the wedge and above 1,260 seems too much to ask for tomorrow - but it will probably happen pre-market!

The Dow was another star performer. It managed to go a step further by closing above its 200-day MA and is very close to taking out the October swing high - continuing the sequence of higher highs and higher lows. Like the S&P it too saw net bullish crosses in Stochastics, On-Balance-Volume and +DI/-DI. While I wouldn't consider the Dow a lead index it is behaving like one at the moment.

Oddly enough, the Nasdaq 100 hasn't quite enjoyed the same level of interest despite the 3.8% gain today. It doesn't look like leadership will emerge here - at least for any rally into the New Year. Tomorrow has added interest of converged 20-d and 200-d MAs with the 50-d MA just a few points below, short players may look to attack here. Technicals have not improved and are still all negative.

The Nasdaq fared better given it managed over a 4% gain. The Nasdaq is below its 200-day MA and is sitting on the 'Bull Trap' divider of 2,616. But with a potential island reversal in play this could turn out to be the start of something great. Like the Nasdaq 100, its technicals are still net bearish. Bulls may find it hard tomorrow, but the key point going forward will be to maintain today's gap as support.

Finally, the Russell 2000 finished the day threatening 'Bull Traps' of late October and early November. Technicals have seen bullish crosses in +DI/-DI and Stochastics as the index posted an almost 6% gain. The  big relative gain is good news for bulls looking for market leadership from critically important Small Cap stocks - although charts of Large Cap Dow and S&P suggest Large Caps will do most of the running into the end-of-year.

Given the big gains today (and over the past three days) it would be a big ask to see such feats repeat tomorrow. Look for a quiet day to consolidate recent gains.


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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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