It has taken a while, but the 8-day decline has finally flashed reversal candlesticks across indices.  Lead indices finished with 'bullish' hammers with spike lows marking increased demand.  Indices are at or near support, strengthening the potential of the reversal.  The Russell 2000 ($IWM) had the longest spike low on oversold technicals.  The index has the additional benefit of outperforming the Nasdaq and gaining ground on the S&P.  Traders can measure risk:reward using a stop at the loss of today's low with a target of November's highs. 

Each of the lead indices have their own support levels to defend, not all tested at the same time.  On Friday, it was the Nasdaq toying with potential trading range support, today it's the turn of the S&P.  These support levels I'm looking at are not major areas of demand, but a guide as to *where* demand might kick in.  So with that, we have the S&P which is down testing neckline support from October with technicals net bearish, but not oversold. Price trumps technicals, so even given the weak technical picture there is a good chance we could see a bounce tomorrow - an aggressive long trade.

Friday's quad witching (of options expiration) made it difficult to confirm the significance of the day's trading action. Some indices continue to work with areas of support - I think - are valid.  Others, not so. The Nasdaq tagged support with a candlestick which is not typically associated with a reversal - a more neutral 'spinning top' - that leaves things open for Monday.  However, technicals are net bearish which guides in favor of bears and further losses. 

Tuesday's 'black' candlesticks were the red flag for bulls - as often they are - when the sizable opening gaps were quickly pegged back, and in the days that followed, sellers were able to continue with the selling, leading to today's losses.  The net effect of this is that indices are evolving from an attempted recoveries off October/November lows into broader sideway ranges.  For the Russell 2000, the index is back at former resistance from the October low - now support - in confirmed distribution. There is an opportunity to dig in at support, even allowing for an intraday spike below this support for tomorrow's trading.

While last week had a disappointing finish for bulls watching the S&P, Nasdaq and Russell 2000 - there is the Dow Jones Industrial Average to provide some pep-in-the-step.  Today's gain was greatest in the Dow (vs the other, aforementioned indices) and has a solid setup for a challenge on the 'bull trap'.  Today also registered as an accumulation day - if only other indices were so good at challenging their past highs. 

The week started with selling but when it came the turn of buyers they failed to show.  Friday was the icing on the cake as whatever small gains were achieved during the week were snipped back.  The Nasdaq is still holding on to its 50-day MA, with Rate-of-Change crossing the bullish 'zero' line as part of a breakout in this indicator.  On the flip side, the ADX, On-Balance-Volume and the MACD are all on 'sell' triggers.

As stated last week, what happens by the close on Friday will have greater significance than how the week started. As things stand now, we are looking at a bearish reversal at resistance that points to a larger retest of the October low.  However, all is not lost. The S&P finished today with a doji following two days of selling which concluded with a break of rising trendline support.  There is a MACD and On-Balance-Volume 'sell' trigger to work off if there is to be a bullish finish to week.  If bulls are to pull this off, then tomorrow needs to see buying throughout the day and at least a close above the 200-day MA. 

We don't want to dwell too much on today's action, although at the same time, we don't want the selling to get away from us. Sellers were able to push markets lower on light volume.  The Nasdaq drifted back to support, but was able to hold the prior support level (at least, support before the 'black' candlestick appeared).  There was a 'sell' trigger in On-Balance-Volume but there is a large degree of whipsaw in this indicator since the swing low in November.  There is a modest uptick in relative outperformance against the S&P which may help the index build out from its November bottom, but this nascent trend needs to continue.

With the end-of-year fast approaching and Santa coming to town, all eyes will be on the S&P next week.  This index finished the week on resistance in a set-up which offers a good chance by the close of business on Friday there will be a breakout.  On the weekly chart, there was a MACD trigger 'buy' and On-Balance-Volume 'buy' to go with an upcoming out-performance against peer indices. Even if there is no price breakout this week, a close above the mid-line of Stochastics [39,1] would suggest a price breakout will be along soon enough.

A regular feature of my Stocktwits and Twitter feed is my #sectorbreadth posts. Sectorbreadth is a measure of the technical strength of component stocks within each S&P SPDR ETF.  Technical strength is derived from the volume, trend, and momentum indicators for each stock.  The percentage score relates to the total of stocks within each ETF on a 'buy' signal.  When more than 90% of component ETF stocks are on a 'buy' signal I consider the sector overbought - and the ETF or component stocks worthy of some profit taking (or a covered call strategy). When fewer than 10% of component ETF stocks are on a 'buy' signal I consider the sector oversold - and the ETF or component stocks worthy of accumulation or a long trade.  I track these trades in my premium Stocktwits room ($149/month with the coupon code  fallondpicks ).  Below is a chart showing how this strategy plays out: The original post: Get a 50% discount on my Roth IRA with a 14-day free trial. Use cou

On my Stocktwits and Twitter  feed, I post regular results from a breakout scan. This scan returns stocks that cleared significant resistance, but as of yet, have not made new 52-week highs.  I also include a count of any penny stocks which also were found in the scan; the more penny stocks relative to the total count, the more skeptical you should be of the featured stocks succeeding - when penny stocks are featured it's because of the greed of retail traders - and those aren't the traders you should be following.   How best to use this list? Look at the #stockbreakout list of 5-7 days ago; you want to find stocks that have held the breakout, but may be offering a better risk:reward than when first featured in my post.  What do these stocks look like in a chart? I don't post charts on these stocks, but I do compile the list by looking at their charts.  Here is an example: Get a 50% discount on my Roth IRA with a 14-day free trial. Use coupon code fallondpicks at G

If, like me, you are not flush with cash to trade, I keep a Roth IRA which I use to snail-trade to wealth.  This account uses a small amount of cash allocated monthly from salary - along with blog income from Google Adsense - to invest gradually in dividend income stocks.  The reality is most people I have met through the years don't have the level of capital to trade successfully and would be better off using tax-efficient accounts, such as a Roth IRA, to accumulate wealth.  Invest4Success is a Stocktwits Premium room that tracks the monthly investments I make into my Roth IRA. It's a back-to-basics approach that uses well-established names, a buy-and-hold strategy, and dividend re-investment to build value.  Eventually, I will use covered calls to generate additional income, but this is probably a year away.  If you are interested, it costs $249 a year, but you can get a 50% discount ($125/year) and a 14-day free trial with coupon code fallondpicks. What is Invest4Success? A

My day job kept me away from doing my market review yesterday, but Thursday's action did me favor and ensured there was no significant give-back to these gains.  What was important (for me) was that gains managed to negate the lingering bearish 'black' candlesticks from last week which were casting a bearish pall on recent action in the Nasdaq and S&P - although the Russell 2000 is now starting to struggle a little.  Of the Russell 2000, the index has moved to an underperformance relative to the Nasdaq and S&P and although the index posted strong gains yesterday - which returned it above its 200-day MA - it wasn't enough to negate the bearish inverse hammer. It may be up to other indices to help pull the Russell 2000 higher, but as long as $176 support holds (on any future decline) then bulls can rest easy.