Daily Market Commentary: 20-day MAs Tested

A good day for indices saw sufficient strength for 20-day MAs to be tested. The Russell 2000 had the best of the action; it gained 1.7% to close the gap to its 20-day MA and bring the index to former declining resistance (since weakened by the 'bull trap').  However, there was a more significant relative strength change towards Small Caps and away from Large Caps and Technology - this is a more bullish development if the rally can advance past the June swing high.

The S&P had less ground to make up to get to its 20-day MA, but in doing so it has also pressed itself against converged trendline resistance and 50-day MA.  This trifecta of resistance will encourage shorts tomorrow (assuming no morning gap higher).

The Nasdaq likewise made it up to its 20-day MA, closing above the 50-day MA in the process. Volume climbed to register confirmed accumulation.  After three consecutive days of gains, tomorrow will be a challenge for bulls to make it four (given the proximity of resistance).

Tomorrow will offer ideal, low risk, shorting opportunities. A strong gap up may make some leary, although this will likely be a gift for those prepared to hang on. The first hour of trading will be key - if there is no rally during this time then bulls will find it hard to generate momentum for the rest of the day.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com.
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