Wednesday, December 05, 2018

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.


The Nasdaq finished with a 'bull trap'. Yesterday's 'black' candlestick was a warning sign, particularly as it occurred at the 50-day MA (which is just below the 200-day MA). However, technicals are mostly positive bar the bearish switch in the -DI/+DI. A near 4% loss in a day is never good but this is an index which has returned to a prior trading range so until marked resistance or support is breached it's a neutral set up.


The Russell 2000 lost over 4% as it accelerated towards its October and November double bottom. Of technicals, only the MACD is positive.  Of the lead indices this looks to be heading to new lows. Shorts will be happy although given it failed to tag declining resistance on the last rally will have limited such opportunities.


The Dow Jones Industrial average reversed off declining resistance on higher volume distribution. Technicals are net bullish bar the bearish cross in the +DI/-DI. This is shaping up as a larger descending triangle consolidation.


For tomorrow, there will a need to see some stall in the losses experienced on Tuesday. The fact indices finished inside prior trading ranges will help but there will be an expectation for October and November swing lows to be defended. Traders can look to buy these tests. Investors can add on losses above 1%. Shorts should wait for rallies to test declining resistance.


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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