The Market has finally noticed the value in Small Caps and added nearly 5% in a drive towards its 200-day MA. The index is still lagging a long way behind the Nasdaq and S&P but has at least enjoyed a relative performance advantage.

For the first time during this crash, Small Caps ($IWM) have begun to swing into a position of leadership with a breakout. The April 'bull trap' in this index has been negated, but the index now finds itself up against its 50-day MA. Despite the relative performance gain the index hasn't turned net positive in technicals with stochastics still below the bullish line.

Thursday had left bearish candlestick across the indices but Friday's gain was an attempt at least to eat into this supply. Buyers weren't able to completely negate the bearish implications of these candlesticks, but it was a good finish for bulls. The S&P has probably the best of it as it edged a close just above its 50-day MA, as On-Balance-Volume ticked back in favor of bulls. The higher close has done enough to close the breakdown gap from April and has stalled the reversal, but the swing high hasn't been challenged. 

Bulls tried to reverse Tuesday's losses but weren't able to close the breakdown gaps. The topping patterns still look valid despite today's gains. To add to this, buying volume was well down on yesterday's selling. Lead indices, the Nasdaq and S&P, remain technically net positive. However, it's hard to be a buyer here.

The opening gaps lower could have evolved into something worse but indices did well to stay close to their open price, even managing an intraday rally, but not enough to make new highs. Again, the index to watch is the Russell 2000; today's inverse hammer would normally be considered a reverse candlestick, but as it didn't occur at a swing high its significance is reduced. However, we have an index which is lurking near breakout support and looking vulnerable. On the good news front, selling volume was light.

It has been relatively easy climb for indices with March capitulation volume now in the 'green' (i.e. anyone who bought stock in March will now be sitting on profit). The question for these buyers is if they will continue to hold as markets approach the point of the first bounce in February (which feels like a long time ago now), and those buyers may now look at a chance to exit at breakeven. If sellers take control, how much resistance will March buyers put up not to take their profits? For the S&P I have drawn in the resistance line where I expect things to get sticky for bulls. Volume climbed to register as accumulation, so there is still a good deal of momentum near to this resistance - maybe it won't be a problem?

A mixed bag of action for the Russell 2000 as bears create a 'bull trap island reversal' on the break - and subsequent move below $118. It was a move which ran contrary to what's happening in the S&P and Nasdaq.

Some low key selling from indices other than the Nasdaq, but not enough damage to reverse the breakouts. Bulls still doing enough to keep the bounce intact. Starting with the positive, the Nasdaq finished a little higher with a bullish hammer and a relative out-performance advantage against the S&P; although the 'bullish hammer' is not a true hammer because momentum is not oversold.

It started with the S&P but now the Russell 2000 ($IWM) has managed to follow suit with a breakout of its own. The move above $117 has come with a breakout gap, and has room to maneuver before it encounters resistance at its 50-day MA or the March breakdown gap.

The S&P did a good job reversing yesterday's bearish cloud cover, clawing back all of yesterday's losses and remaining above breakout support. Technicals aren't all there yet; the ADX (+DI/-DI) joined the MACD on a 'buy' trigger, while Stochastics and OBV remained bearish.

Surprising action from markets with gap breakdowns switching instead to bullish island reversals. These reversals were also accompanied by breakouts for some indices which keeps the bounce going for a little bit longer.  Island reversal do need to come from oversold momentum indicators, and this is not the case here.  It's possible we have the low retest, but given the extent of the initial decline it will still be a while before indices pull themselves out of oversold conditions. The S&P almost registered a breakout, but technicals haven't improved enough to suggest we are there yet. While relative strength continued to improve, aside from the MACD we haven't seen too much improvement elsewhere.

While Friday was a day for sellers, it didn't undercut the initial lows established by the breakdown gaps. While markets remain in a short period of stasis, given recent volatility, they are unlikely to remain there for long. Selling volume was down from Thursday's buying, but given the breakdown gaps haven't really been challenged, the expectation is that markets will continue lower as part of an initial retest of March lows. For the S&P, there is a well established MACD trigger 'buy', parlaying against a 'sell' trigger in On-Balance-Volume, but a fresh acceleration in relative performance against more speculative Small Caps.  What money is flowing to the market does appear to be going into more defensive Large Cap stocks.

The best thing about today was the higher volume buying, but the breakdown gaps established yesterday by the selling remain the same. However, markets have reversed in bulls favor in the short term but these gaps need to close soon if their bearish inference is not to be confirmed. The S&P finished with a bearish engulfing pattern but On-Balance-Volume hasn't yet signaled a 'buy' despite the higher volume buying.

With a new month we have a fresh review of the monthly investor watch signals; the tables at the very end of this article show the current relationship of the indices to their 200-day MA. The S&P and Nasdaq are still in the 10% zone of historic weak action; the latter back to 1950 - the former to 1971. The Russell 2000 is still well inside the 1% of historic weak action and today's action confirmed this. The Russell 2000 took a near 7% loss and gapped down from its swing high; this gap - if it becomes a true breakdown gap - cannot close, so it does establish a risk:reward marker for shorts to work with and  a resistance line to define a sequence of higher highs when this turns into a bull market. The question now is whether it will test the March swing low or make a new higher low? To add to the misery, selling volume increased as new distribution was registered - again, one which points in favor of short trades.