The Russell 2000 broke the 'bear flag' as the ROC dropped below zero to push it into 'Bear Market' territory. This is not good news for the broader indices as Small Caps leadership is a key requirement for secular rallies - and likewise for secular declines.
The other sector to suffer was the Semiconductor Index. Like the Russell 2000, it has a key leadership role for Tech indices (which have yet to break but are likely to follow suit) and the loss left a break of the May swing low - which is troubling as the Nasdaq and Nasdaq 100 are only trading at July swing lows. This could get ugly.
While this happening (or not), the S&P and Dow Jones Industrial Index are still bound by their respective 'bear flags'.
For tomorrow, look for follow-throughs lower in the Russell 2000 and Semiconductor Index. This means short traders can trade the break(down) in the Nasdaq and Nasdaq 100; stops go above the 'bear flag' highs.
You've now read my opinion, next read Douglas' blog.
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