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Bulls Were Unable To Build On Morning Optimism

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After the Fed driven sell-off that delivered support breaks for some of the indices there was an attempt by bulls to stage a bounce, but traders weren't able to build on the sizable opening gaps, and some indices drifted lower by the close. The Russell 2000 ($IWM) lost the most ground off the open. However, today's close was enough to regain support, leaving yesterday's action as a potential 'bear trap'. Technicals are net bearish oversold. And today's buying volume was below yesterday's selling (distribution). The S&P finished the day where it started, which is also 20-day MA resistance. Aggressive traders could go with a swing trade as the next move could be sizable (particularly if the move is higher). The Nasdaq is dominated by the trading range, but within that we have a consolidation triangle. As it stands, the index is at resistance of this triangle, and given recent selling volume I would be looking for a move to close today...
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Markets Mixed Bag As Bitcoin Breakout Holds

We have a bit of a mixed bag. Markets which were oversold and developing swing lows are now struggling to mount a bounce. Those in trading ranges are still in the upper bounds of those ranges, and could still breakout, but are likely to be influenced by their much weaker brethren. Bitcoin is holding its breakout, but today's doji after yesterday's move lower doesn't inspire a whole lot of confidence.

Starting with the Russell 2000 ($IWM), we have an index on a fast track to test the 200-day MA. The early September swing low failed and we don't really have a reversal candlestick here, but we could see an attempt at one, once the index tests its 200-day MA. What we need to be careful of is a crash scenario that can emerge in a scenario like this (deeply oversold and net bearish).

The other index in this predictament is the equal-weighted S&P ($PSXEW). It closed today with a small hammer, but the 200-day MA is looking a more likely test. An aggressive long is to buy a break of 8,500 and keep a tight stop.

Meanwhile, the weighted S&P is holding its 20-day MA and has yet to challenge 7,800 - something I would expect off the September 'bear trap'. Technicals are mixed, but what's interesting is that stochastics for the weighted S&P have yet to challenge the bullish mid-line, while the unweighted S&P stochastics are deeply oversold. There is reason for optimism as long as 7,600 holds as support.

The Nasdaq is threatening to gap lower, with the 20-day MA its initial target. Technicals are net bullish, so a gap lower may offer an aggressive buy on the moving average test as price is unlikely to collapse from here...

Although... we need to keep an eye on the weekly chart. Here we have a bearish wedge, and plenty of room down to the 200-week MA. This might set the tone for the latter part of the year, but it's not something we have to worry about for this week.

Bitcoin ($BTCUSD) blinked and moved lower Monday, and the attempt to recover this lost ground stalled out today. I'm not sure there is sufficient demand at $82.5K to survive a third test, and then there is the 20-day MA to consider. If we get a close below $82.5K we will have a new 'bull trap', and a test of 77K is in order.

We need to go into the next couple of days a little more cautious if you are a long. Taking profits wouldn't hurt, just in case things take a turn. Bitcoin remains long term bullish, but the continued shaping of its right-hand-base may take a little longer than expected.

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

Popular posts from this blog

Bulls Were Unable To Build On Morning Optimism

Image
After the Fed driven sell-off that delivered support breaks for some of the indices there was an attempt by bulls to stage a bounce, but traders weren't able to build on the sizable opening gaps, and some indices drifted lower by the close. The Russell 2000 ($IWM) lost the most ground off the open. However, today's close was enough to regain support, leaving yesterday's action as a potential 'bear trap'. Technicals are net bearish oversold. And today's buying volume was below yesterday's selling (distribution). The S&P finished the day where it started, which is also 20-day MA resistance. Aggressive traders could go with a swing trade as the next move could be sizable (particularly if the move is higher). The Nasdaq is dominated by the trading range, but within that we have a consolidation triangle. As it stands, the index is at resistance of this triangle, and given recent selling volume I would be looking for a move to close today...
Read more

Upcoming "Death Cross" for Russell 2000 ($IWM)

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There was some modest buying today from the open, but volume was light and markets are below trading range support established during the latter part of 2024. It's hard to see where the buyers are going to come from given the chaos of Trump. I should add, I listened to Josh Brown's The Compound podcast and he showed an interesting chart of market returns in April-May in the year following a strong return in markets; in essence, selling to pay capital gains tax. Given the precarious nature of markets, and the possibility for this seasonal factor to play out, it's likely we have a couple more months of downward action before value buyers return. If we look at individual markets, the Russell 2000 ($IWM) is looking like the first to signal a long term shift in favor of bears with an upcoming "Death Cross" between the 50-day MA and 200-day MA - perhaps completing before the end of the week. Technicals are net bearish and the volume trend has collapsed since the st...
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...And Then Sellers Pushed Hard

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I don't know if the equal-weighted S&P is a harbringer of things to come for other indices, but a second day of heavy selling has undercut the 50-day MA, and breakout support. Technicals shifted net bearish with a worrying undercut of mid-level stochastics. The next support level is down at 8,600s, but I want to see oversold stochastics on such a test. However, the ease at which existing support was lost is a concern.
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