Bears counter 'bull flags' with ruthless efficiency

It was not to be for what had been a relatively orderly bounce from May lows.  Friday's trading drove the nail into the coffin of the 2-week long bull flags with a 'gap-and-run' lower, which now puts the May lows under pressure. If bulls are to get out of this with the prospects of a double bottom then today or tomorrow has to see a spike low, preferably one with a wide intraday range which capitulates the last of the weak hands.  But if we see another day like Friday, then it's back to the drawing board as to looking for a bottom.

For the Nasdaq, we have the May spike low of 11,035, but really, it's the candlestick real body support of 11,152 which has to hold on a closing price basis - spike lows below this are fine (and are to be welcomed). We have technical pressure with the uptick in bearish trend strength, the relative 'sell' trigger against the S&P, the 'sell' signal in On-Balance-Volume, and a weak 'buy' signal in the MACD which is close to reversing to a strong 'sell' (when the MACD line is below the zero line it's a weak 'buy' and strong 'sell'; vice versa in the reverse scenario).

The S&P is already at its real-body support of 3,887.  Note how Stochastics [39,1] never made it above the mid-line, confirming a bear market rally (when this metric is below 50 we have a cyclical bear market, and a cyclical bull market when above 50). The index also sits on the verge of a new strong 'sell' signal in the MACD.

There is a silver lining for markets and there will be few singing its praises, but the Russell 2000 ($IWM) continues to perform well (relatively).  Yes, it couldn't avoid the selling of Thursday and Friday, but it did manage a brief cross of the 50-midline in Stochastics (cyclical bull market territory) and its MACD is close to returning above the bullish zero line.  It has continually outperformed peer indices since the start of April - with that relative performance accelerating over the last couple of days.  This is an investors set-up; growth stocks is where the stealth buying is happening and markets are trying to keep this a secret.

The end-of-week market headlines will look bad for Monday, but the Russell 2000 ($IWM) is quietly doing better than the S&P and Nasdaq.  Take note, this is not a market to be selling - particularly for growth stocks which are (or are on the verge of) outperforming the Russell 2000.  

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

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