Daily Market Commentary: Bears carry a sting in their tail

Old news was tied to today's losses, but this is a rich market which if offering more to holders who have held shares over the last 5 years to sell, than those willing to buy.More importantly, it was the first real day of intent from sellers, as up to now, bearish action had been weak. Volume registered as confirmed distribution.

Hardest hit was the more speculative Russell 2000. The sizable bearish engulfing pattern effectively wiped out the breakout, leaving a bull trap. The index did finish on its 20-day MA, but I wouldn't get too comfortable with that. There was a 'sell' trigger in the MACD to add to the misery. Even with this, the index is still outperforming the Nasdaq.  Shorting opportunities will become available on rallies back to the engulfing high.

The S&P finished back at breakout support, but its chance of holding is about the same as the 20-day MA in the Russell 2000. There is a MACD trigger 'sell' in line with the one in the Russell 2000.

The Nasdaq also had a 'bearish engulfing pattern'. It didn't come back as far as breakout support. This may give bulls something to work with if a morning gap down doesn't expand into further loses. An aggressive 'buy' might be on offer here.

Sellers may finally be ready to take another run on the market. Bulls have kept them at arms length at every turn; the February rally was a perfect riposte to bears attempt to weaken the market in January. This might be another chance to see markets move down to December and/or February swing lows. Should this happen, we are probably then looking at a broader head-and-shoulder reversal (and a weak summer ahead). But one step at a time first.


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