Daily Market Commentary: Indices at Horizontal Support

Friday's buying was quickly unwound at the open following sizable gaps down. A late afternoon surge regained some of the lost ground, but indices still registered losses of over 1%. Not surprisingly, technicals continued their decline. Volume was heavy, but below that of Friday's.

The S&P is caught in a bit of a no-mans land, but there is reason to suggest it could mount a rally to challenge its 20-day MA: daily technicals have crept into oversold territory and there is a nascent bullish divergence shaping up in the MACD histogram.

The Nasdaq was able to defend 3,300 as it finished with a doji. However, technically it's not as oversold as the S&P, maintaining its relative outperformance against the S&P since late April.  Another pass at 3,300 would likely attract buyers and be a good low risk entry with a tight stop.

Helping the Nasdaq will be the semiconductor index. It bounced off lower channel support, although it turned net bearish (technically) in the process.

The Russell 2000 is probably offering the best bounce opportunity having closed just below 954. As with the semiconductor index, it also turned net bearish today, with the undercut of the 50-line in Stochastics. A close above the 50-day MA would offer some follow through upside, probably all the way to the 20-day MA.

An aggressive buy at the open, or pre-market (especially if there is the possibility of gap down) will probably offer some nice upside for a quick trade.  Although play it small, it could be a rocky opening half hour.

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