Monday, May 16, 2011

Small Caps Turn Bearish

As of last Friday the stock market was sitting right on significant support but by the close of today's trading things have changed considerably.

Lets start with the big picture which is a weekly chart of the Russell2000 index shown above. As you can see this index is right at significant long term resistance. The Weekly MACD in the lower panel has also crossed lower. A bearish MACD cross at major resistance is a powerful signal in my opinion

Below is a daily chart of the russell2000 index and as you can see this market has closed below the uptrend line. Notice the small head and shoulders pattern that has also developed.  A head and shoulders pattern which takes place at key resistance is usually very bearish. In the lower panel we see the MACD which is showing multiple bearish divergences.

As you can see the pieces of the puzzle are beginning to come together and in my opinion I am beginning to see a bear emerge from its cave. Lets see what happens!


ben said...

Can you comment on why TLT and SPY are rallying together?

Usually bonds and stocks are competing for investor money and
they go in opposite direction. If bond yield is falling, investors are expecting economic activity to slow, thus dropping stock price.
The fact that both are up indicate to me either bond investors are right or stock investors are right, but not both. The bond market is a lot bigger and sophiscated than stock market so my bet would be bond investors will win.

Miss Wallstreet said...

I think we will continue to see the markets drop and small cap stocks are particularly vulnerable right now. Nice analysis.


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