Showing posts from December, 2018

Embrace the Fear - Russell 2000 and S&P in 'Strong Buy' territory

Since my last update markets have taken a bit of a spin. Investors should now take note that both the S&P and Russell 2000 fell into the 'Strong Buy' territory in the move to their respective swing lows.  The Russell 2000 fell as far as 20% below its 200-day MA; note, if it reached 21.4% below its 200-day MA it would be in the 1% zone of historic weak action going all the way back to 1987; like it or not, this is a significant  investor buying opportunity for Small Caps stocks.

Support goes Poof!

Now the panic will start, but Investors should be rubbing their hands in glee. The Russell 2000 has dropped into the 5% zone of historic weakness with the Nasdaq in the 10% zone (S&P unchanged in the 10% zone). Shorts will be happy too but will need to be mindful of snap bear rallies which can quickly clock up 20% gains - and eat up profits (without breaking the broader bearish trend).

S&P and Nasdaq follow Russell 2000 lower on confirmed distribution

Sellers stayed on for another day as it was the turn of the S&P and Nasdaq to follow the losses of the Russell 2000 from Friday.  Volume picked up in confirmed distribution, suggesting there was substance behind today's selling. On the investment front, the S&P moved into the "10% zone" of historic price action (i.e. 90% of S&P action dating back to 1950 was better than what we are seeing now); it's another accumulate buy for those looking to build a long-term investment. The Nasdaq was only 0.4% from doing likewise - completing the history trip back to February 2016.  After that, we are looking at 2008 and 2011 style corrections.

Russell 2000 takes a step lower

While it wasn't the biggest loser on the day, the Russell 2000 did manage to undercut the bullish hammer - ending any chance for a Santa rally of note. Look for this weakness to repeat for the S&P and Nasdaq. The Russell 2000 is still in the accumulate zone for investors and Friday was another chance to add to positions. Again, this may be only the start of the decline but without knowing what may be coming one needs to take chances as they appear.

Bearish cover undermines nascent bounce

Since October's sell-off, down days that racked up losses of 3% or more have garnered much media attention, but the action of the last two days looks a lot more bearish than one of those big sell-off days. The Nasdaq posted a small bearish black candlestick on Wednesday, which was followed by a small bearish engulfing pattern today. Given this followed from an earlier bullish hammer, it now looks like this bounce is losing momentum and another push towards sub-6,800 is on the cards. There is an uptick in relative performance (vs the S&P) but I wouldn't be looking for this to last.

Markets struggle to build on yesterday's bullish 'hammers'

It was a good finish for bulls on Monday but there was a lack of follow through on what should have been a good day for buyers.  However, damage was still relatively light. Technicals for the S&P reverted to a net bearish state as other indices lost ground. The S&P cut into yesterday's spike low but not enough to negate the bullish hammer. I would look for another spike low and would measure risk on a break of 2,580.

Russell 2000 breaks support; other indices to follow?

A tough close for markets on Friday.  The week finished with a decisive break of support for the Russell 2000 which undercut the prior double bottom - this sets of a bad precedent for other indices. There is still a chance for a 'bear trap' but markets will need to recover 1,465 over the next few days - Monday preferably. To add insult to injury, technicals are all net negative and relative performance accelerated lower.

Trump punches Santa in the stomach

Well, that didn't last long, Trump's comments on Chinese tariffs stuck a knife in the rally but the damage wasn't total. Anyone who shorted or sold the resistance test in the S&P will be happy, but breakout buyers in the Nasdaq will have been stopped out as a 'bull trap' is confirmed. The S&P gave up both the 50-day and 200-day MAs as the rate-of-change remained in sub-zero territory throughout the rally. Both the MACD and On-Balance-Volume are holding on to their bullish signals but there needs to be a sharp recovery (starting Thursday) if these signals are to hold. Investors were offered another 'buying' opportunity as part of the buying the dips after the Oct/Nov 'buy' signals.

Morning Gaps Higher Hold

Trump's overnight deal with China was going to cause a gap higher in the market. The challenge was whether this gap would be faded by shorts or if bulls would be able to push it higher. The end result was mixed as bulls were unable to add to markets off the open but the likely short fade never materialized - which is good. The S&P tagged resistance from the October and November swing highs as it finished the day with a neutral doji.  Short term (buyers) will take profits here and aggressive shorts may try to attack the bounce but long-term investors can hold for another move lower before adding.

Santa is off to the races

A good finish to the week left no doubts as to which side had control of the market this week. Bulls stepped up Wednesday and added a finishing touch Friday. Volume climbed in confirmed accumulation. Where possible, I have drawn new resistance lines connecting October and November swing highs which are the new upside targets for current market rallies. The S&P hasn't turned fully net bullish (in technical strength) but it's only a couple of days away from doing so. The index finished Friday on its 200-day MA which may offer some resistance on Monday.  Get past that, then there is the 50-day MA before the index gets to challenge the resistance line from recent swing highs.


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