Friday's selling threatens major support in Russell 2000 (and maybe S&P too...)
Tricky times for markets, but for the Russell 2000 in particular. Since the start of the Silicon Valley Bank crisis we have seen a rapid deterioration in the state of the markets, and the vulnerability for a crash, as crashes occur not from highs, but when markets are oversold - and that's where we are now. However, last summer's low is a low of consequence and import, so I would see any additional loss as a temporary loss that should quickly reverse and offer excellent buying opportunities for those willing to take the risk (as a long term investor). Where it gets more questionable, is how far any such sell off/crash could go.
But before we get there, we need to see a loss of existing support. For the Russell 2000 ($IWM), this is the $170 level. Selling volume surged last week in confirmed distribution and technicals are net bearish. Relative performance is also accelerating lower.
The next index on the line is the S&P. I had redrawn resistance based off the angle of support, and this resistance was tested and rebuffed on Friday. If the Russell 2000 ($IWM) loses $170 support, then I would be looking for a similar loss of 3,800 in the S&P, even if the S&P is still over 100 points away from this support level.
The Nasdaq is the only bright-spark of lead indices. It had managed to break resistance on Thursday, and Friday's selling finished with a neutral doji that held on to this breakout. But, if the S&P and the Russell 2000 breakdown, then it would be hard for the Nasdaq to cling on.
For tomorrow, I would be looking for a test of $170 in the $IWM. An intraday violation would be okay, its an end-of-day close that would be the concern here. If that happens, then I would expect the S&P and Nasdaq to follow suit soon afterwards. And when that happens, panic could set in. However, the next major bottom is probably close; bear market lows typically come in 2 1/2 years from the prior peak (all-time high). For us, that high was in November 2021, so if we are looking for the low of this bear decline, then it could be early 2024 by a standard bear count, but it's likely to be sooner. Also, I do not see loses getting anywhere near the generational low of March 2009.
So, where can we expect to see markets find support *if* there is a crash. For me, I would look to:
Russell 2000 ($IWM): $110; S&P: 3,000; Nasdaq: 8,000.
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