Small Caps Recover Strongly as Nasdaq Breakout Stabilizes

Buyers made a strong defense of the Russell 2000 as yesterday's losses were reversed - and then some. However, there is still some 2-3 days worth of buying required before it can be said to be challenging new highs. Weak shorts will have covered today but more staunch shorts will be feeling nervous; a move above 1,710 is a cover of any short.

The real beneficiary of today's buying was the Nasdaq. Having successfully held on to breakout support today saw the index put some distance away from support - any move back to such support should attract fresh buyers.  The index also continues to outperform the S&P.

The Nasdaq 100 is also building support at the 20-day MA and a push above 7,500 would negate the July 'bull trap' and mark new all-time highs.

Large Caps are contained by their rising channels and today's buying didn't do much to change this. The point of note was the bounce off the 20-day MA for the S&P.

The likelihood is that the majority of new trades over the last couple of days were short trades. So, now it's a question how these short-trade holders will react if prices continue to rise. Certainly, any push to new 52-week highs should force the last of the shorts out. Long traders in the Nasdaq or S&P have some reason for optimism as traders will likely transition back to long positions if prices hang on here.

You've now read my opinion, next read Douglas' blog.

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Dr. Declan Fallon is a blogger who trades for education on eToro and can be copied for free. Investments are held in a pension fund as buy-and-hold.

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