Daily Market Commentary: Nasdaq 'Bull Trap'

A late day sell off took indices to their lows.  Carl Icahn's opinion on the market was enough to send some shareholders running for the hills, but only the Nasdaq and Nasdaq 100 came out with any significant bearish tone.  Both of these indices are on MACD trigger 'sell' signals dating back to early November.

The Nasdaq breakout from last week was undone by today's selling, leaving a 'bull trap' and a possible (aggressive) shorting opportunity. However, the broader bull trend is dominant, and any short play would need to be assessed within this larger trend.  As for a downward target, the 20-day MA should see a test tomorrow, but the 50-day MA is a more attractive proposition.

The Nasdaq 100 also left a 'bull trap', but its operating outside of its former channel, leaving the (former) upper channel line as a downside target (and the 50-day MA for any follow through).

The Russell 2000 finished with a bearish engulfing pattern, with a close smack on the 20-day MA. A weak open tomorrow would set up for a move down to the 50-day MA, with a follow through target of lower channel support. Stops can go on a break of today's high.

While the S&P and Dow Jones retained their breakouts.

For tomorrow, a gap down would set up a good shorting opportunity, with the Nasdaq and Nasdaq 100 the most likely indices to give a profitable return.  Stops can go on a break of today's highs.


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