Relief Buying Has Potential To Continue
Declan Fallon | Oct 06, 2021 12:15AM ET
Tuesday's buying was able to erase much of Monday's losses, although trading volume was below that of Monday. Given the declines in lead indices, what happened yesterday has the potential to act as a swing low— it's just whether nearby 200-day MAs would not prove to be a better point for buyers to come in to support the indices.
The NASDAQ rallied from a prior support area, one which also corresponded to the July swing low. Technicals are net negative with a big swing against it when it comes to relative performance against the Russell 2000.
Semiconductors may be able to help more here as they did enough Monday to perhaps register as a succssful test of the 200-day MA. The bounce cames off a common support area established back in June and if a sideways trading range was to emerge here, then where we are now would make an excellent support level for such a pattern.
The S&P is in a bit of a no-mans land, but given it's oversold technically there is an opportunity for it to bounce from here. Ultimtately, any such bounce may just be a pause in a larger decline towards its 200-day MA but lets see what happens.
Not surprisingly, the Russell 2000 (via IWM) has little to show for recent action. It remains caught in the middle of its longstanding 2021 trading range with only the 200-day MA for company. If it is to launch a rally, then we should be looking at a positive support test here, but the candlesticks we are seeing do not inspire confidence. One technical which is working in its favor is momentum, defined by Stochastics [39,1] - it's trading at a point consistent with support in a bull market.
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Declines in the S&P and NASDAQ are not surprising given the extent of their Covid rallies. Longer term, I'm more interested in what the Russell 2000 does, and so far, it hasn't signalled a whole lot.
Let's see if Tuesday's buying inspires anything on Wednesday as there is room for a rally.
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