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Showing posts from October, 2018

Rallies Run Into Channel Resistance

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The initial bounces off spike lows have encountered their first major test of supply with pushes into newly drawn channel resistance. All indices are mapping this price action. First up is the S&P. Today's action finished with a spike high bang on channel resistance. Technicals are negative with the exception of relative performance, which has been tracking higher since September. Shorts may look to attack here and are likely expected to do so - if they don't emerge then we can think about Fibonacci retracements of the entire September-October move.

Volatility Picks Up as Selling Volume Lightens

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Intraday ranges were wide as indices struggled between building swing lows or selling off even more. By the close of today's business, indices were indicating lows are not in place and further declines are likely but these may be nothing more than spike lows (on yet another wide range day). Whatever happens, the investor `buy`signals are still in effect for the S&P and Russell 2000. The S&P experienced a 4% range between highs and lows as the relative performance continued to swing back to Small Cap stocks (after an extended period of outperformance from September). Sellers look to be exhausting themselves as volume took a significant drop.

Losses Look Bad But Long Term Investors Should Be Accumulating

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Friday was ugly but could have been a whole lot worse. What was particularly worrying was that certain indices were unable to defend either Thursday's close or open and were left set up for another big push lower. However, by the close of business - while not pretty - these indices were certainly better than they could have otherwise been.  That's not to say indices can't or won't go lower, but if you are buying low and selling high we are in one of those buying low setups. The best index for buyers is the Russell 2000. Friday's action tagged the 10% envelope from its 200-day MA and is an area where 90% of historic action for this index since 1987 has been better than it is now. Should the Russell 2000 tag 1,378 it will reach the 95% zone of historic action. Friday's finish also left it better than halfway inside Thursday's range with a bullish hammer to boot. Relative performance is poor but likely oversold.

Sellers Step Up The Pace

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It was 2001 all over again as lead indices registered 3% losses on a day of solid selling and registered distribution. The 'bear flags' are history but their effects are still very much in effect. Worst affected was the Semiconductor Index as it gave up nearly 7% in a move which has the makings of a measured move lower.  The initial target is 1,115 which doesn't look entirely unreasonable after today. There was nothing bullish as relative performance (vs the Nasdaq 100) accelerated lower.

S&P Breakdown from 'Bear Flag'

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There was no acceleration in the losses for the Russel 2000 and Semiconductor Index but today it was the turn of the S&P to break from its 'bear flag'. It was more of a technical break than an absolute loss but given net technical weakness, it must be respected.

Breakowns in Semiconductors and Russell 2000 Indices

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There was no reversal on the 'bear flags' but in the case of the Semiconductor Index and Russell 2000 there were breakdowns from those same 'bear flags'. The Russell 2000 broke the 'bear flag' as the ROC dropped below zero to push it into 'Bear Market' territory. This is not good news for the broader indices as Small Caps leadership is a key requirement for secular rallies - and likewise for secular declines.

'Bear Flags' Take Shape in Indices

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Since the last update indices got their bounce but the last couple of days have seen these gains gradually erased. Over the course of the week, the entire bounce has the look 'bear flags' as part of larger measured moves lower.  Should this emerge then indices will be close to offering the long term 'buy' signals I track in the tables below every blog post I make (available on markets.fallondpicks.com for syndicated content). Last of which for all three indices was February 2016 For the S&P, the measured move target is 2,585. This comes on a day of higher volume distribution with an acceleration of On-Balance-Volume lower and other technicals net bearish. However, relative performance is accelerating higher (vs Small Caps) and the index is clinging on to its 200-day MA

Friday's Bounces Ease Back a Little

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There was no real surprise to see the gains from Friday come back a little as Thursday's lows play a siren song. The most likely outcome is a consolidation pennant as prices focus off last week's lows - this might take a week to play out but the surge in volatility may see some pushback to stabilize price action. The S&P finished just below 200-day MA as it inches back to 2,710 lows. I would be looking for more small losses or a neutral doji. The best of the action is the strong relative performance (against Small Caps) which runs contrary to price action itself.

Indices Defend 200-day MAs

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Last week's selling had put pressure on markets not seen since 2016 but the run of good form has meant Tech and Large Cap Indices are only now testing 200-day MAs. There was a brief overshoot on Thursday but the week closed more settled. The S&P did well to make it back to its 200-day MA but it complicates the risk:reward which now has a loss of 2,710 as the place for a stop which is well outside most comfort zones. Given that, I would look for some retest of 2,710.

Buy Signals Blown Away

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The support levels which were on offer for the Russell 2000, Dow Jones Industrial Average and S&P were undone by the biggest 1-day loss in the year. Not surprisingly, volume rose in distribution as traders bailed.  The only index to finish on support was the Nasdaq 100. Although with a 4%+ loss it would be a brave trader to be buying the 200-day MA.

Buy Small Caps.

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Today is a simple call for action. On Friday, the Russell 2000 tagged its 200-day MA in a manner which was picture perfect for those peppering the 200-day MA with GTC 'buy' orders.  Monday was the second chance for a slice of this action with another tag of the 200-day MA. If there is a 200-day MA fail it will be a clean sell but as this is oversold on near-term and intermediate stochastics it's looking like a relatively low risk buy with stops on a loss of 1,615 and an initial target of 1,715 - a healthy risk:reward with the index closing at 1,630.

Russell 2000 Tags 200-day MA; S&P at 50-day MA; Semiconductor Cracks

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Indices recorded another set of losses but some now offer an opportunity for longs. Best of these belong to the Russell 2000. The Russell 2000 managed a picture perfect tag of the 200-day MA with Friday's lows making it to 1,618. Shorts trading the tag (of the 200-day MA) will have come out with a nice profit and aggressive longs may have also used the opportunity to trade a bounce with a buy.

Small Caps Take Another Step Down

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Small Caps weren't able to recover the channel and another 1%+ loss was chalked up. It's looking ever more likely a tag of the 200-day MA is on the cards. Relative performance actually ticked up despite the loss but this was an ugly day.

Nasdaq breadth metrics breakdown as Russell 2000 cracks

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A mixed bag of events for markets as some moved while others remained unchanged. The Russell 2000 made a key move lower as it broke channel support. Relative performance widened its losses as declines were logged.  The next target is the 200-day MA.

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