Daily Market Commentary: 'Bear Trap' Dow Jones Industrial Average

Big gains as uncertainty over the U.S. debt deal eased (although it was somewhat surprising to see so much buying). Ordinarily, one day gains as big as today's tend to be bearish over subsequent days and it will be interesting to see things play out over the next few days.

The index best set to post further gains is the Dow Industrial Average.  Today's gains created a 'bear trap' in the index which makes any move back to the channel a buying opportunity. Stops go on a loss of the 200-day MA or 14,720.

The Russell 2000 gapped above its 50-day MA as it works its way to a challenge of the earlier 'bull trap'. Technicals are mixed, although slow stochastics [39,1] is trading at the midline, a typical support level in bullish rallies.

The Nasdaq also gapped higher after defending its 50-day MA. It's a race between it and the Russell 2000 to challenge their 'bull traps'. It too sits at stochastics [39,1] midline typical of bullish support.

The index most likely to encounter supply is the S&P. Today's rally brought it through its 50-day MA and up to its 20-day MA. However, given the gain, buyers will be itching to take profits after making up of for five days of losses.

For tomorrow, it will be hard for the rally to push higher, particularly if indices approach 'bull traps'. But what today has done has set the ground work for a swing low, which is where long side risk can be assessed on future weakness.


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