Nasdaq primed for breakout

Markets experienced modest losses, but there is still underlying strength in the market.  The Nasdaq is primed to break to a new swing high, helped by the relatively light volume associated with today's selling as it knocks on the door for a close above 12,200. Technicals remain net bullish, although the index did lose some relative performance against the S&P.  However, Rate Of Change is the highest it has been for months, another indication of bullish strength and the likelihood of a breakout in the coming days.

Feeding into Nasdaq strength is the Semiconductor Index. But where the Nasdaq is getting ready to break, the Semiconductor index has drifted below its early breakout, to the point it's now underperforming relative to the Nasdaq 100 and is at risk of a 'bull trap'.  The index is trading above key moving averages, with only the CCI on a 'sell' signal.  Again, I'm more interested in what the real-body (open & close price) of the candlestick does relative to support and resistance, so I'm not yet declaring today's action a breakout failure.  

The S&P hasn't yet gone to challenge the February high, but has at least taken out the March swing high. While the index isn't performing as strong as the Nasdaq, it does have strong supporting technicals. Strength in technicals helps offset some of the weakness in price; look for an intraday spike low down to 4,050, but it would be important for the real body of the candlestick to stay above 4,050. 

The index currently struggling the most is the Russell 2000 ($IWM), and therefore is the index that experiences the most pain when markets are under pressure.  Momentum for the Russell 2000 is firmly bearish with stochastics [39,1] below the mid-line and a negative trend in ADX, not to mention the sharp relative underperformance to both the Nasdaq and S&P.  On-Balance-Volume is on the verge of a 'sell' signal, and the 'buy' signal in the MACD is undermined by its trigger below the bullish zero line.  There isn't much to like here - and if bears were to get the crash they crave - then the Russell 2000 is going to be the index to deliver on this first.  As long as the real-body candlestick remains above $170 ($IWM), then the development of a double bottom remains in play. 

Going forward, we have the Nasdaq ready to break key resistance and a Russell 2000 toying with key support.  If you are a long, you are looking at trading the former, but shorts have reason to work the latter index.  Shorts in the Russell 2000 ($IWM) would assess risk above $179.78, which also so happens to be its 200-day MA.  Longs in the Nasdaq can trail a stop with a close below its 50-day MA.  Should the Nasdaq break higher as the Russell 2000 loses support, then I would tighten any stops and give precedence to the Russell 2000.  Leadership in new trends comes from Small Cap stocks, so I wouldn't want to be wishing for technology stocks to hold up while growth stocks were in the toilet.  

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

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