Overreaching Enthusiasm?

Bullish monetary policy rumblings from China and Europe had kick started a bright opening for markets, but the feel good factor gradually wore off as the day lengthened, and in the end, the day felt oddly bearish. The S&P closed with a bearish inverse hammer, which could turn into a bearish shooting star if there is a gap down on Monday. Volume climbed to register technical accumulation, but this could mark significant overhead supply if sellers come back tomorrow. I have widened the Fib levels for the next decline. Note, pending MACD trigger 'sell,' although other technicals are in good shape.

The Nasdaq did alright as it emerged from a secondary handle. The 'black' candlestick finished close to breakout support, and there isn't much room for further losses. It also looks more likely to trigger a MACD trigger 'sell'. There is also a worrying relative shift away from (speculative) technology stocks to safety first, Large Caps.

The Russell 2000 is working a challenge on a 'bull trap', but it's doing so under the cover of larger resistance. I have widened Fib levels and drawn in what might evolve into a 'bull flag.' Technicals are mixed, and with flatline moving averages this isn't offering a clear advantage one way or the other.  Even the relative relationship to other indices is lacking direction.

One index which is still offering bulls something is the Semiconductor Index. Friday's 'spinning top' is neutral, but it has knocked out the September 'bull trap.'

The other watch area for Monday is the tag of the declining resistance for the Nasdaq Summation Index and Nasdaq Bullish Percents. This might mark a reversal point for the Nasdaq - which would also suggest the 'black' candlestick in the Nasdaq will mark a swing peak top.

For Monday, look for a reversal opportunities in the S&P and Nasdaq. If bulls manage a bright start, then the semiconductor index could deliver fresh upside.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com, and Product Development Manager for ActivateClients.com. You can read what others are saying about Zignals on Investimonials.com.

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