Recovery From Yesterday's Gaps; Nasdaq And Dow At Channel Support

Well, it has been two days since the last post and yesterday's open started with a big gap down which started the day for the S&P below channel support (and the prospective buying opportunity) but has now left the Nasdaq in a possible buying opportunity.

For the S&P, the gap down may have been enough for value buyers but the break effectively kills the rally and likely starts a new sideways consolidation. The MACD trigger 'sell' expanded with a new 'sell' trigger in the ADX.

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However, what hurt the S&P has instead helped the Dow Jones Index. Like the S&P, there was an ADX'sell' trigger and a MACD 'sell'. The index has been sharply underperforming the Nasdaq 100 since October but a bounce from support could offer the foundation for a kick-on rally with a shift in relative performance in Large Caps favor.

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On the back of losses, the Nasdaq is also trading at channel support. Unlike the Dow Jones, it has the benefit of a relative performance advantage (vs the S&P), but does have the MACD trigger 'sell'.

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The Russell 2000 was the first index to lose channel support. The breakdown was confirmed by a 'sell' trigger in the MACD, On-Balance-Volume, and ADX; only stochastics left to switch to a net bearish picture. Relative performance remains weak.

The Semiconductor Index recovered over 2% but given it's caught between channel support and resistance it's net neutral - although with a bullish bias because of the rising trend.

For tomorrow, look for channel support rallies from the Dow and Nasdaq - the latter in particular. Longer-term, a sideways consolidation of gains generated from the August acceleration (part of the broader rally from the end of 2018) looks closer to happening now after a similar pattern had started to emerge during the summer of 2019. From a trade perspective, selling covered calls against underlying long positions looks favored.

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