Courtesy of Declan.
Friday’s action marked a balance between bulls and bears. Tech and Small Cap indices finished with indecisive doji, marking a swing trade opportunity; buy/sell break of Friday’s high/low with a stop on the flip side. The S&P and Dow closed lower, but not enough to suggest bears finished the day in control.
The losses in the S&P weren’t enough to trigger a ‘bull trap’, so the long-side play is still favoured. Selling volume was also down on Thursday’s buying, another reason to suggest bulls have control. Technicals remain net bullish.
The Nasdaq did try and push above its tight 3-day range, but was unable to garner much in the way of bullish momentum. However, the broader trend is still bullish, with the August rally well established. A ‘bull flag’ or other consolidation would be welcome, but Friday’s action doesn’t necessarily suggest this will happen now.
The Russell 2000 is best positioned to gain. The last four days has shaped a small handle with buyer support at the 200-day MA. Given the July sell off, it remains best placed to challenge June’s high. Longs can add with confidence on a close above 1,164 with a stop on a close below 200-day MA.
Feeding the rally in the Nasdaq and Nasdaq 100 is the rally in the Semiconductor Index. It too closed with an indecisive doji on Friday, but the rally remains on course to reach the July high of 652. This will help the Nasdaq and Nasdaq 100.
While the Nasdaq swing low is confirmed, the point of the bounce is not one associated with a major swing low. Nasdaq breadth rallied from a mid-point in breadth, and looks to have a lot in common with the 2010 summer swing low. Although the Nasdaq Summation Index and Percentage of Nasdaq Stocks above 50-day MA didn’t fall into oversold territory.
For the coming week, consider a ‘buy’ on weakness. It’s probable this rally has legs so best to take advantage. The August swing low is the line in the sand for bulls. A push back to the 20-day and/or 50-day MA is the chance to take.
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