Do we have a 'Bear Trap' in the Russell 2000?

Markets enjoyed a second day of gains, although volume was down on prior days. Again, with the exception of the Russell 2000, it's still all noise of swings within larger consolidations. The S&P challenged the 'bull trap' with new 'buy' triggers in the MACD and On-Balance-Volume.

The Nasdaq closed at pennant resistance with its own MACD trigger 'buy'. Other technicals remain negative. Not much to add here until there is at least a decisive move outside the pennant on volume.

The Russell 2000 is the only index to attempt an important reversal. After breaking below 1,465 support this week it did subsequently manage a counter move back above 1,465 in a 'bear trap' reversal. This should be a bullish move back to (and above) 1,610. If the Russell 2000 can lead an advance in the S&P and Nasdaq, then we should see these latter indices reach their July swing highs well before the Russell 2000; but doing so would support the Russell 2000 making a similar challenge.

From a trade perspective, there may be another opportunity in the Russell 2000 but the opening risk is higher given the stop would need to be placed below the 'bear trap' lows. Other indices are inside their consolidations, so the whipsaw risk is still very high even if the internal pennants see a decisive break.

You've now read my opinion, next read Douglas' blog.

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