Sunday, January 10, 2016

Markets followed Thursday's sell off with another round of selling on NFP day

An ugly day for bulls pushed what was already an oversold market into deeper state of weakness. Short term traders will be looking for a bounce as markets speed their way to August/September lows. One index has already surpassed these levels. The Russell 2000 is in the 90% zone of historic weak prices going back to 1987 and is well beyond September lows.

The S&P has only see one day of gain for the last seven days of trading. While Friday's selling leaves the index in a 'no-mans' land.  What was particularly disappointing was to see such selling coming off the back of very strong NFP data. If there is a positive, it's that the selling was not on heavier volume distribution, which is unusual given the significance of the data released.

The Nasdaq is getting close to the 15% zone of oversold historic conditions dating back to 1971. As with the S&P, selling volume did not rank as distribution. Friday's action wasn't pretty, but there may be grounds for optimism.

The Semiconductor Index continued its run lower with 7 consecutive down days. The chances for an 8th can't be ruled out, but a bounce of some form will occur sooner rather than later. How much such a bounce can help the Nasdaq and Nasdaq 100 remains to be seen.

Just as a watch point for Nasdaq breadth, the Percentage of Nasdaq Stocks above 50-day MA has dropped into oversold conditions.  The Percentage of Nasdaq Stocks above 200-day MA has tagged the 2014 swing low. Any additional losses will push this breadth metric down to 2011 swing lows. However, other metrics haven't reached oversold levels: the Nasdaq Summation Index is well off oversold conditions, and Bullish Percents has yet to tag the 2015 low.

For Monday, watch premarket for leads. A weak Asian session might offer an aggressive long at the open. What will be more telling is how far the next rally goes.  I suspect there are plenty of 'weak-hand' longs who bought shares on the premise of the 'Santa Rally' and are now regretting it.

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, and Product Development Manager for I also trade on eToro and can be copied for free.