Sunday, January 31, 2021

S&P breaks rising support, Nasdaq sits on support

I doubt anyone wants to read about anything else but Gamestop stock, but the broader market marches on.  

The S&P is trading at its 50-day MA after undercutting rising support on Friday.  There was a break of the mid-line in Stochastics, but technicals are not fully bearish with On-Balance-Volume still to flag a 'sell' trigger.  On a positive note, the S&P is making up ground against the Russell 2000.

The Nasdaq did not escape the selling, but it did manage to hold support of the rising trendline. Technicals are not as bearish as the S&P; On-Balance-Volume and Stochastics are still bullish, while the ADX and MACD are on 'sell' triggers.  The Nasdaq is in the process of outperforming the Russell 2000 which may help it defend support over the coming days.


The Russell 2000 had traded along a much sharper trendline, but even so, the generated break only went as far as to undercut its 20-day MA.  There is still 9 odd points to go before it gets to its 50-day MA. Where things might accelerate to the downside is if relative performance continues to deteriorate. 


Things are slowly breaking down but there has been no broader panic. However, as we start to roll into February we have an S&P which is 9.8% above its 200-day MA (below the 85% price level of historic price extreme), a Nasdaq at 15.5% above its 200-day MA (still at 85% zone of historic price extremes), and a Russell 2000 at 22.7% above its 200-day MA, which despite recent losses, is still in the 99% zone of historic price extremes.  

Even before retail traders start fooling around with Gamestop we had a market at extremes since December. Mean reversion will look ugly, but it will be timely - and now looks to be the time; for many of these indices, the 200-day MA will be the target. 

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

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