Russell 2000 ($IWM) rushes out of the gates at its own expense

There was a bit of a mixed bag from markets since my last update. The Russell 2000 ($IWM) burst out of the bag on Monday's bullish setup but most of the action was premarket, and by the time the market opened it was in decline. This continued into Thursday with the resulting closure of the breakout gap. However, because all of this occurred inside the trading range, its significance - and the potential for a bullish bounce tomorrow - is reduced.

The S&P closed on a more neutral setup. Today's close finished within yesterday's range, but the candlestick was a little more bearish. Watch for a closure of the breakout gap, as happened with the Russell 2000. However, significant breakout gaps (i.e. gaps that are followed by major trend moves - higher here) don't close. So, if this is to prove true then ideally, we can't violate today's (or yesterday's) lows. Day traders can play aggressive and expect an open near today's close (buying pre-market weakness), but protect yourself from tomorrow's Fed comments if in the green.

The Nasdaq is in a similar predictament as the S&P, although today's action did attempt to follow to new highs it got caught in the general sell-off malaise. If tomorrow's pre-market leads to a gap down, then look for a move to close Tuesday's gap a la Russell 2000 ($IWM). However, if the Nasdaq can open near today's close, then bulls can be aggressive as there will be no overhead resistance to contend with.

The Dow is interesting. It finished with a doji, not one in an oversold state that could mark a bullish reversal, but one well off its highs. If you are looking for a more cautious long opportunity, then this may be the index to work with and premarket moves should be watched closely. Unlike peer indices, it's technicals are net bearish.

Tomorrow offers a mixed bag. The Dow offers the best chance for bulls to gain, but if there is a soft open, then the Nasdaq is the one with the most downside on offer.


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Investments are held in a pension fund on a buy-and-hold strategy.

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