The S&P 500 index seems to have disregarded arguments against a “bull trap” and sellers promptly reversed the initial surge, pushing the index back below 4,200. The pain of this reversal was compounded by new ‘sell’ triggers in MACD and On-Balance-Volume, though the former occurred above the ‘bullish’ zero line, rendering it a weak signal. Selling momentum picked up speed, and the index is currently underperforming relative to the Nasdaq.
SPX Daily Chart
The breakout seems to still be in play as technical indicators are holding. Bulls will now be looking towards the Nasdaq for signals as there isn’t anywhere else to go. Although the S&P 500 closed with a standard bearish candlestick, the Nasdaq held on with a more neutral doji, setting the tone for a more bullish response tomorrow. The index’s strong performance relative to the S&P 500 is also in favor of the bulls.
COMPQ Daily Chart
The Russell 2000 (IWM) managed to break out of its congestion zone only to run into its 200-day MA and quickly reverse course with a large bearish inverse hammer. It then suffered another loss, only to find support at the nearby 50-day MA.
Technicals are mixed, mostly bullish, but with a fluctuating On-Balance-Volume signal line. The index has not yet entered a period of outperformance relative to the Nasdaq but has relative outperformance when compared to the S&P 500.
The Russell 2000 could serve as the deciding factor between the bullish Nasdaq and the bearish S&P 500, and at the moment, the bears appear to have a slight advantage. A break below the 50-day MA would further strengthen bearish sentiment.
IWM Daily Chart
The Dow Jones Industrial Average is also feeling the heat as it sheds its breakout. This could potentially spell trouble for the Nasdaq as it tries to hold its own.
SOX Daily Chart
With the Memorial Day weekend coming up, traders only have a few more days of trading before jetting off for the extended weekend. While bulls may still have some cards to play with, if selling persists, a concerted act of selling could be the outcome. This is not something we have witnessed yet, but the possibility is there.