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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 ($IWM) lost the most ground off the open. However, today's close was enough to regain support, leaving yesterday's action as a potential 'bear trap'. Technicals are net bearish oversold. And today's buying volume was below yesterday's selling (distribution). The S&P finished the day where it started, which is also 20-day MA resistance. Aggressive traders could go with a swing trade as the next move could be sizable (particularly if the move is higher). The Nasdaq is dominated by the trading range, but within that we have a consolidation triangle. As it stands, the index is at resistance of this triangle, and given recent selling volume I would be looking for a move to close today...
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Russell 2000 ($IWM) Fails 200-day MA Test as Semis ($SOX) Target 5.5K

Troubling times for indices as Thursday's strong bounce was killed by an even larger sell off on confirmed distribution. The Russell 2000 ($IWM) was already oversold when it finished with a bearish engulfing pattern. The May swing low has played as support following the loss of the 200-day MA, but after Friday, it's hard to see that continuing. Looking at a weekly chart for the index, there is a chance the 50-week MA could play as support, but for this to happen we need to see a Friday close at or above this level; if we don't, then $240 becomes next support.

Semiconductors continue to lose ground, but it's not the collapse that headlines suggest. However, the drop below 12.5K has left a sizable "bull trap" that effectively means the 200-day MA - and 10,450 - will likely see a test in the weeks ahead. But going forward, I would be looking for a measured move lower that could bring 6K into play. Now, that sounds like (and is) a big drop, but the index *peaked* at 5,472 in 2024. I think we are just going back to a more rational Smeiconductor bull trend as a consolidation in the AI sector is long overdue. Look at the Fib clustering aroun5 5,500, another reason to suggest we could see such a test.

The Dow Jones Industrial Average and equal-weighted S&P have tagged their respective 50-day MAs, both rejected the tests on spike highs. Note how the real-body of Friday's candlestick in $SPXEW tagged July resistance. A close above this line (and 50-day MA by association) would be enough to negate the bearishness from Friday.

The weighted S&P is still holding its 7,600 breakout, but Friday's candlestick left it on weak support and below 20-day and 50-day MAs. If the index loses 7,600 support, then 7,250 comes into play along with a test of the 200-day MA.

The Nasdaq is in a bad state. It's may find some early week support at 26K, but it does look destined to test its 200-day MA, before losing that battle and falling to a trading range test of 24.5K. But even then, it will likely lose that test too, particularly if Semiconductors freefall. Technicals for this index are not oversold, so no crash warning, yet...

On the Nasdaq weekly chart, we have a wedge breakdown with 20K support a target for early 2027.

As for Bitcoin, I had a 'buy' on the 50-day MA "hammer", but with the drift into the spike low there is an increasing chance this reversal candlestick will fail. You don't want to see the real body of a candlestick close inside a previous candles' spike - it reduces the significance of the demand (or supply) caused by the spike. If you were long and had fished for a 'buy' order inside the spike, you may want to get out while you can without a loss and wait and see what comes next.

Lots to ponder heading into next week. Semiconductors look set for a big trim, but even a big loss would do little to end the rally kicked off in 2009, turned into a secular bull market in 2014, and should run into 2034+. Other indices will take their lead from this. The loss in the Russell 2000 is perhaps the most damaging, because it was a long term underperformer before it found some form in late 2025. We don't want to see it drop below $240 as this would point to a broader decline in investor interest across sectors and stocks big and small.

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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

...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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Last Chance To Grab a Bargain?

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What carried for the end of the last week still has relevance today. If you haven't been a buyer, you still have a chance now. There are a number of support opportunities across indices. The Russell 2000 ($IWM) is holding support of its converged 20-day and 50-day MAs. The 'bull trap' is still the dominant (bearish) play, so if there is an undercut of these moving averages, and by that, I mean an end-of-day close below these averages, then a move back to $287 is favored.
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