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Indices Close Near the Lows of the Day on Friday

Friday saw the indices close near the lows of the day as Semiconductors tagged resistance and its 20-day MA.

 

By Dr. Declan Fallon

 

Supporting technicals offered a mix of bullish and bearish markets but shorts have their opportunity with a stop above 1,334.

The S&P (NYSEARCA:SPY) edged a close above the bullish mid-line in stochastics along with a ‘buy’ in On-Balance-Volume. However, the index also experienced a relative loss against Small Caps as it struggles to attract new buyers.

The Russell 2000 (NYSEARCA:IWM) pushed across the bullish mid-line and is close to a new MACD ‘buy’ trigger. While the Russell 2000 is outperforming against the S&P it’s underperforming against the Nasdaq. However, a push above the 20-day MA may be enough for it to regain overall leadership.

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The Nasdaq (NYSEARCA:QQQ) may be the relative market leader but Tech indices closed lower where Large and Small Caps finished higher. A loss tomorrow will kick off the potential development of a new downward channel; marking a continued expansion of the consolidation.

The longer term charts are more mixed.  Nasdaq breadth metrics (Percentage of Stocks above the 50-day MA, 200-day MA, Summation Index and Bullish Percents) are caught in a bit of a no-mans land and are not oversold so it’s neither a buy nor a sell.

Similarly, the number of new 52-week highs and lows do not signify a top or a bottom but look to be favoring further weakness as 52-week lows show a gradual increase but as yet haven’t spiked or gained above the number of new highs.

The Dow Transports-Industrials ratio has again tagged its support neckline as it pressures the ‘bear trap’ following last weeks ‘bull trap’. There is a big void down to 0.20s which is likely to coincide with a weakening of the economy (weak transports = weak demand for goods).

The employment rate and Michigan consumer sentiment are also at levels more associated with a top than a bottom.

Going forward, bulls will need to be careful about committing to buying dips beyond anything with a short-term timeframe (> 6 months). The best strategy for long-term buyers is to wait for markets to come back into the zone last presented in February 2016 and highlighted in my tables below this article.