Tuesday, March 05, 2013

Daily Market Commentary: New Highs But Not In Breadth

The indices grabbed the headlines, but it may be a short lived given new market highs have not been supported by breadth metrics.

The Nasdaq gapped higher and was supported with a MACD trigger 'buy'. If this is a true breakout, then the gap can't close; infractions into the space suggest weakness and will run the risk of a rapid move back to its 200-day MA (effectively, a false breakout) to the extent it would be a more attractive short play than a pullback buy. Until then, caution advised for bulls.

The Percentage of Nasdaq Stocks Above the 50-day MA is experiencing technical weakness dating back to the middle of January. While today brought some recovery (not recorded in the chart yet), it's questionable if it will be enough.

The Nasdaq Bullish Percents has struggled to get past the 66% mark. Again, technicals weakened at the start of February (even if the parent breadth index has flat-lined). Note: not updated for March 5th.

The Nasdaq Summation Index tends to be the smoothest of the breadth metrics. Today's Nasdaq gain looks ready to trigger a new 'buy' signal, but there really is very little upside room for this to move.  Technicals are also firmly on the way down.

If the Nasdaq is going to fly into the face of its breadth metrics, it will need the help of the semiconductor index. It may offer what breadth can't. The Tech crash remains a huge dagger to the heart, but since 2011 it looks like its time has come. A break above 500 would be very bullish.

The momentum is with the bulls and the retail (punter) sector looks like its driving the rally.  Better value will offer itself later in the year, but it's hard to be buying long term value given the froth in the indices.


Follow Me on Twitter

Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. You can read what others are saying about Zignals on Investimonials.com.