Thursday, November 07, 2013

Daily Market Commentary: 'Bull Traps' in S&P and Nasdaq

It looks like indices were doing their best to upstage Twitter's IPO.  Both the S&P and Nasdaq closed with 'bull traps', threatening larger pullbacks. It will take a push above October's highs to knock out the 'bull traps', which may take a few days. What today offers is an opportunity for shorts to take a shot at a possible larger move lower.

The S&P also managed to log a MACD trigger 'sell', but countered by holding its 20-day MA. Assuming some defense of the 20-day MA on Friday, look for shorting opportunities as the bounce takes the index back to Thursday's open.  Stops go above 1,775.

The Nasdaq took a larger hit than the S&P, which was combined with a distribution day. The index cleanly sliced through its 20-day MA (which is likely what will happen with the S&P too).  The index has already registered a MACD 'sell', and followed with a bearish cross of -DI on +DI.  Risk:reward is measured from the 3,967 high, with the 50-day MA and lower channel support the downward targets (i.e. a bounce back to the 20-day MA is the time to short).

The Russell 2000 lost its breakout and is only a couple of points above its 50-day MA. The decline from October highs has hit Small Caps hard, as noted by the large relative swing away from the Russell 2000 towards the Nasdaq and S&P. It's also looking like it will be the first index to turn net bearish technically.

Today was the first indication shorts might be offered something to work with. Bounces can be worked for moves to channel support at the least. Profit taking continues to be the order of the day for existing longs.  Those looking for value can wait a bit longer before jumping in.


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