The Russell 2000 took the brunt of Friday's selling. The 'bear flag' off former support, now resistance, followed through lower to bring the index back to a flat-lined 50-day MA. Technicals are mixed with 'sell' triggers in the MACD and +DI/-DI. Relative performance accelerated lower after months of underperformance. Small Caps are key bull market leaders but there has been a distinct lack of interest from buyers for the last 6 months and this is not good news for other markets.
Weakness in Small Caps has started to sow doubts in other indices including a potential 'bull trap' in the S&P. The point loss in the index was small so it won't take much to revive the rally, but the index will need a kicker if Small Cap weakness is not to play a larger role in Large Cap performance.
The Dow Jones is similarly encumbered. Note the positive test of converged 20-day and 50-day MAs on higher volume distribution. Monday will be important.
If there is a bright spot it's the Nasdaq and Nasdaq 100. Both indices are feeding off the recovery in Semiconductors. The latter index posted good gains from a 'bear trap' with technicals bullish. Last week's breakout gap adds to the bullish momentum. An uptick in relative performance is coming off the back of a scrappy 6-months in its relationship to the Nasdaq 100; a break to new highs will be needed to confirm price action.
With the assistance of Semiconductors, Tech indices are outperforming with supporting technicals net bullish.
However, a moving average of new 52-week highs for Tech and NYSE are showing a slowdown too. This has not coincided with a pick-up in new 52-week lows, but this rally is starting to run on fumes.
For tomorrow, bulls can look to the Semiconductor Index to continue its run. However, if there is a slow start then look to the Russell 2000 to push lower and undercut its 50-day MA. This could lead to a similar loss in the Dow Jones and put further pressure on the S&P.
You've now read my opinion, next read Douglas' blog.
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