Friday, October 04, 2013

Daily Market Commentary: Big Intraday Swing with Distribution

Thursday proved to be a bit of a roller coaster, with some markets doing better in recovering big morning losses than others. Volume did climb to register a distribution day, but given the extent of the day's range I was surprised it was not higher.

The Dow was again took the brunt of the day's selling.  Lower channel support appears to be the target, but wouldn't be surprised to see it go as far as the 200-day MA, an average last tested over a year ago.

Bulls will be more concerned with the action in the Russell 2000. Yesterday's selling confirmed a 'bull trap' on the break of 1,077.  Shorts can use this with a stop on a break above 1,087. It won't be plain sailing for shorts as the 20-day MA offered support yesterday, and may provide a focus for a rally Friday (Futures are up modestly at time of writing). If a rally was to close Friday above 1,077, then the Russell 2000 isn't looking so much at a 'bull trap', but more likely a wider sideways consolidation in the range 1,087 - 1,059 (and the trade becomes a break of either level with a stop on the flip-side).

Action over the past two days is leading to longer term 'sell' in the Nasdaq and Nasdaq 100.  Market breadth has shifted negative over this brief period.

And if you look at the Nasdaq and Nasdaq 100, it's clear channel resistance is proving to be a step too far for bulls. There is a cheeky punt for a short to the 50-day MA (with follow through potential to channel support) with a stop on an upside channel breakout (or above this week's high depending on your risk tolerance).

Bulls have had it easy since June lows, but yesterday gave an indication bulls may be tiring. There are potential short plays on offer, but you wouldn't want to hold them for long if bulls re-assert themselves, because if this week's highs are taken out, then the premise for the short trades will have mostly gone.


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