Gaps down put pressure on bulls

After weeks of gains which amounted to a series of low volume rises, we now find a more concerted action to the downside with gaps which may not get filled easily.

In the case of the Nasdaq we had the August breakout stall and reverse with a move below breakout support.  I have drawn a secondary support line connecting the last swing lows.  This can be considered support until proven otherwise. Aggressive buyers may consider a positiom here, but the spinning top doji is a more neutral candlestick - suggesting price action could go either way.

The S&P experienced a larger gap down which undercut its 50-day MA. Technicals are net bearish with today's cut below Stochastics [39,1].  The next major support level is the 200-day MA. 

The Dow Jones had already broken below support in late August - offering an indication as to what may come for the S&P.  It looks like this index is heading to a test of its 200-day MA. so look for a similar move in the S&P. 

The Russell 2000 also gapped lower, but as its range bound the move was of lesser significance.  Add to that, it gaped below its 200-day MA on higher volume distribution,  Technicals are mixed with 'buy' triggers for On-Balance-Volume and Stochastics offset by 'sell' triggers in ADX and MACD.  Of the lead indices, I wouldn't be too concerned on the gap down for now.

With the Dow Industrials leading the market topping action it would appear the Nasdaq and S&P have some way to go to catch up with it.  The Russell 2000 is of lesser concern as long as the trading range remains. 

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

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Investments are held in a pension fund on a buy-and-hold strategy.

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