Daily Market Commentary: Higher Volume Selling, and Bearish Engulfing Pattern in Russell 2000 and Semiconductor Index

In day when Alibaba took the headlines, it was left to the Russell 2000 and Semiconductor Index to warn of potential change.

The Russell 2000 experienced a large bearish engulfing pattern, although within the boundaries of the declining channel. There was an undercut of the 200-day MA, which will need to be watched on Monday. Shorts could get aggressive with a stop above 1,164 (and/or declining channel line).

The semiconductor index also experienced a bearish engulfing pattern, which doubled as a 'bull trap'.  This is a decent short side opportunity with a stop above 660. Technicals are clinging to the bull side, so watch for a bullish reaction on Monday.

The S&P experienced huge volume trading on Friday, but there was little net change on Thursday's close. Given the volume, it's hard to look past a retest of 1,987, but it's going to take more than Friday's selling to hand market control over to bears.

The Nasdaq didn't finish with a bearish engulfing pattern, but did with bearish cloud cover.  Friday's action keep things inside the range, and bulls should wait for a break of 4,601 to trigger a new breakout.

For Monday, bears have a chance to generate some follow through. However, stops need to be kept  tight.  Even a strong upside gap on Monday might be enough to nix the short side play.


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