Further Selling - But Markets Range Bound

It will rank as another distribution day for markets, but despite a second day of selling bears were unable to erase Friday's big bullish bonanza for Large Cap and Tech indices. The only index to suggest bears are gaining some form of control is the Russell 2000. Today saw the trendline connecting September and November swing lows broken to the downside.  This has come with a sharp drop in relative performance against the aforementioned indices.

The S&P nearly tagged the 50-day MA, but did enough to suggest this moving average is support. The index will benefit from money rotation out of speculative Small Caps into more defensive stocks, which may just mean softer losses.

The Nasdaq did at least gain from the weak open. It wasn't able to finish above yesterday's close, but tomorrow offers another chance to post a new swing high, or at least negate the possibility of a double top. Technicals point to further weakness in short term, but a couple of days worth of gains could see a 'strong buy' in the MACD and a 'buy' trigger in On-Balance-Volume, so bulls may have the easier route in the long run. The 4,900 level looks key as an intermediate term support area.

Markets are getting buffeted into a trading range, which makes positioning oneself for the next move more difficult. Even short term traders will find the range difficult to generate opportunity. The Russell 2000 will probably attract shorts, but there isn't much on other indices to work with.

You've now read my opinion, next read Douglas' and Jani's.

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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. I do a weekly broadcast on Friday's at 13:30 GMT for Tradercast, covering indices, FX and gold, silver and oil - all are welcome! You can read what others are saying about Zignals on Investimonials.com.


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