Weekly Market Commentary: Breadth Takes Another Step Lower

Fallond Stock Picks

After a brief respite, marker breadth took another leg lower. Breadth losses were not small, but breadth indices haven’t yet made it to oversold territory. This suggests more downside is to come.

The Percentage of Nasdaq Stocks above the 50-day MA fell to 27%.  Stochastics are close to oversold, but they aren’t quite there yet. Another week of downside would probably be enough to see technicals oversold, but there is probably still 2-3 weeks of breadth loss required before the breadth index itself is oversold.

The Nasdaq Bullish Percents are the most overbought. Stochastics are caught in neutral territory, but trending lower.  The MACD closed the week with a ‘sell’ trigger. but the Bullish Percents index is still above 50%; strong swing lows kick in sub-10%, but tradeable swing lows usually need a sub-50% value.

The Nasdaq Summation Index is another index which hasn’t reached swing low territory.  For this index, a sub -800 rating is usually good enough for a swing low.  Technicals are bearish, but as before, stochastics are not oversold either. A decent swing low is likely going to take longer than a couple of weeks. It could be early Q1 2103 before we see a more concrete low in play.

The Nasdaq is approaching a support level of 2,863, but breadth suggests it will not hold. Next support at rising wedge support might (currently at 2,800) offer an alternative.

Shorts may soon find more on offer from the Russell 2000. The index is threatening a break of trendline support, below which is a void of support down to 745.

While the S&P is testing an important weekly support level at 1,370, converged with trendline support. There is very little room for maneuver if you are bull here.

Bulls have some options on Monday, but they are running thin.  The problem with a rally is that it will start from a point where strong swing lows don’t usually develop (based on breadth indices).  Caution advised.