Thursday, August 02, 2012

Daily Market Commentary: Russell 2000 Breaks

By in large, indices spent the day defending support but the Russell 2000 suffered a more telling loss after yesterday's 2% drop.

The break of rising support in the Russell 2000 following yesterday's break of the 50-day and 200-day MA is a concern for other indices given the importance of Small Caps as leaders.  Note the sharp drop in relative strength compares to the Nasdaq (also bearish).  The consolation is the former declining resistance line and 764 area is holding as support, so the short term favors bulls.

The S&P was able to defend the thick blue line of support on mixed technical strength.  Since the July low there has been a sharp swing to defensive Large Caps over Small Caps which doesn't bode well for the long term health of the is rally.  Note the comparison between April and July in relative strength to the Russell 2000; it could be an ugly decline which follows.

The Nasdaq is entering an interesting crux as prices coil down between rising support and falling resistance. While it trades support it's an aggressive long.

The short term (one or two days) probably gives bulls more to play with, but the sharp swing to defensive Large Caps will rear its ugly head and lead to a more substantial decline; until then, look to channel and/or 50-day/200-day MA support until proven otherwise.


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