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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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200-day MAs Come Into Play On Friday's Selling

Indices are at an inflection point with 200-day MAs acting as last major support before we have to look elsewhere.

We will start with the Russell 2000 ($IWM). The break of the declining trend managed to survive until a test of its 50-day MA, then sellers kicked it back to its 200-day MA. I'm not particularly optimistic for this test holding, but until we get a loss of $275 there is a chance bulls could hold out. Aggressive longs could fish for GTC 'buy' orders around $275 and bail if $270 is lost.

The equal-weighted S&P takes one step forward and one step back, but manages to post a net gain. It's above all key moving averages and is on course to test 9K. Technicals are net bullish.

The weighted S&P took a bigger hit on confirmed distribution. The trading range that index had managed to protect during the AI-semiconductor turmoil has come under pressure from Friday's selling, but is not entirely done given the low of the 'bear trap' at 7.5K has not been violated, but if it fails, then the 200-day MA becomes the next target.

The Nasdaq also ran into trouble at its 50-day MA and now finds itself in a pending challenge of its 200-day MA on higher volume distribution. While I wouldn't want to see an undercut of the 200-day MA, there is a second level of support at 24.5K from the July swing low to work. Remember, we are working off a September 'bull trap' which typically delivers a move down to support of the prior range (that delivered the 'bull trap'), so I will be looking for this test.

The equal-weighted Nasdaq 100 is going to test its 200-day MA and there is a good chance for a successful bounce given the proximity to the June swing low too.

Bitcoin has come back to support of the August-September consolidation, that to give up would bring the 200-day MA into play. On-balance-Volume has been trending down since the start of October and while I'm optimistic for Bitcoin in the long term, the presence of oversold stochastics leaves it vulnerable to an acceleration lower. It may even come back as far as 65K, but lets see what happens next; play as a swing trade with risk:reward measured by the narrow doji.

Finally, Semiconductors made it down to its 200-day MA and could lose more ground given this is the second test in the space of a week. Technicals are net bearish, but not oversold. We may see a move higher to fill the gap before combined pressure of the 20-day and 50-day MAs pushes this lower.

For the coming week, further losses could set a cat amongst the pigeons and introduce some panic in the markets. Having said that, there are still support levels to work with and most of the weakness is concentrated in a small number of (heavily weighted) stocks. I'm liking action in the equal-weighted S&P, and would feel better if the Russell 2000 would do likewise.

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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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Russell 2000 and Bitcoin Break Support

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The Russell 2000 ($IWM) delivered on its 'bull trap' as the reversal came all the way back to support before undercutting $288. Selling volume was high but not excessive as the index now looks on course to test its 200-day MA. Stochastics are oversold, and in a bear move these can stay like this for an extended period - so don't be banking on a bounce. What would be bullish is if we get a 'bear trap'; i.e. a close above $287. In the intermediate term (to the end of year) we are due a tradable bounce and a 'bull trap' would set up for one quite nicely.
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