Friday's Market Doji Point To Indecision

We closed the week with small doji at the top of recovery rallies for the Nasdaq, S&P and Russell 2000.  This candlestick is typically neutral, but given what's come before I would view these candlesticks with a more bearish bent.

The S&P has returned to a net bullish stance in supporting technicals, although relative performance against the Russell 2000 actually ticked away from a possible new 'buy' signal.  While Large Caps are still lagging Small Caps they still have the benefit of a new all-time high to work off.  Buying volume across last week was light; this will need to pick up if all-time highs are to be maintained. What should work in its favour is the 'bear trap'; this will have pushed some traders on to the wrong side of the trade, forcing them to cover (or go long again) if they haven't already. 

The Nasdaq is playing off a more traditional successful support test. Unlike the S&P, overall trade volumes have been picking up since the start of the year.  The technical picture is similar to the S&P with supporting technicals net bullish, but it's losing relative ground to Small Caps. 

The Russell 2000 finished the week at a new all-time high, although technicals are not as bullish as for the Nasdaq and S&P, it still managed a crucial relative advantage up tick. The MACD is still on a 'sell' trigger. Buying volume has also been tepid since the successful test of its 20-day MA. 

If things start to tire for the Russel 2000 it will lead to a boost for the S&P, but it will also mark a rotation into more defensive stocks - and when interest in that fades, then you are looking at a broader decline across all indices.  Remember, the Russell 2000 is still 27.2% above its 200-day MA, which is well above 99% of historic price action dating back to the inception of the index and it has been running hot since December. Gamestop may be garnering the headlines, but the Russell 2000 is packing its own extended heat. 

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

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