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Upcoming "Death Cross" for Russell 2000 ($IWM)

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There was some modest buying today from the open, but volume was light and markets are below trading range support established during the latter part of 2024. It's hard to see where the buyers are going to come from given the chaos of Trump. I should add, I listened to Josh Brown's The Compound podcast and he showed an interesting chart of market returns in April-May in the year following a strong return in markets; in essence, selling to pay capital gains tax. Given the precarious nature of markets, and the possibility for this seasonal factor to play out, it's likely we have a couple more months of downward action before value buyers return. If we look at individual markets, the Russell 2000 ($IWM) is looking like the first to signal a long term shift in favor of bears with an upcoming "Death Cross" between the 50-day MA and 200-day MA - perhaps completing before the end of the week. Technicals are net bearish and the volume trend has collapsed since the st...
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Trades Relunctant To Punch New Highs For Indices; Take Profits

The Russell 2000 ($IWM) had done well to reverse its first big red candlestick in months on a solid day of "value" buying, but struggled to build on it. Now, with bad news sweeping the regional banking sector - leading to another sizable red (selling) candlestick on confirmed distribution - it's hard to see buyers coming in for a second bite. In percentage terms, markets are trading above summer levels, so there isn't too much downside to take what you can now (across all asset classes), and wait it out (until the next dip below 200-day MAs).

When we look at other indices, the picture looks more menancing. The S&P found resistance in what could turn out to be a reversal head-and-shoulder pattern as it reversed at September's swing high. We are seeing a degredation in the technical picture, albeit from a once strong bullish setup; for example, On-Balance-Volume is still trending higher, but is unlikely to survive a spate of distribution days. The 50-day MA is looking like a last chance saloon before we next stare at the 200-day MA far below.

The Nasdaq has rallied at a more modest rate than the S&P, so while it has a bearish setup similar to the S&P, it has more support to work with, and the 200-day MA isn't as far away in relative terms. It's on the verge of a 'sell' trigger in On-Balance-Volume, likely to occur today based on Futures action. I would still take profits, but whatever comes next may not be as damaging as some of the negative news around AI investment suggests will happen.

What may be more interesting is what's happening with Bitcoin. The selling its suffering, albeit on light volume, has it very much aligned as a "tech" index, rather than an alternative safehaven to gold. It will be interesting to see how much 'tech bros' will be willing to defend this (by buying the dip), or will they let it revert to its prior wild mood swings.

Going forward, it's going to get messy. Any expansion of this sell off will first ask the question, "is this a new trading range?", depending on where the initial downleg settles. Next will come a study on the veracity of the bounce, and where it may stall out. Then, off the stalled bounce, will that reversal kick start a new downwards trend. As for action, I have sold some covered calls in my ROTH, but holding my pension position. You don't want to trade (if able to) your pension account. Lighten up on the non-pension investment account so you can be a buyer on the next undercut of the 200-day MA.; April 2025 was the last such signal, so don't expect the next one to happen until sometime in 2026.

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

Popular posts from this blog

Upcoming "Death Cross" for Russell 2000 ($IWM)

Image
There was some modest buying today from the open, but volume was light and markets are below trading range support established during the latter part of 2024. It's hard to see where the buyers are going to come from given the chaos of Trump. I should add, I listened to Josh Brown's The Compound podcast and he showed an interesting chart of market returns in April-May in the year following a strong return in markets; in essence, selling to pay capital gains tax. Given the precarious nature of markets, and the possibility for this seasonal factor to play out, it's likely we have a couple more months of downward action before value buyers return. If we look at individual markets, the Russell 2000 ($IWM) is looking like the first to signal a long term shift in favor of bears with an upcoming "Death Cross" between the 50-day MA and 200-day MA - perhaps completing before the end of the week. Technicals are net bearish and the volume trend has collapsed since the st...
Read more

"Dead Cat" Bounce or Something Better?

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It's still a little too early to say, but the bounce is in play and "long" is the place to be. There is a huge amount of overhead resistance and the risk:reward remains tight with moves back to Thursday's lows well within expectations. For the S&P, I would be looking for a rally back to test the 200-day MA, or a fast-falling 20-day MA, whichever is the lowest. Real supply won't kick in until 5,700 is tested, and maybe it will have the juice to get to 5,775 before volume selling makes its presence felt. As the index makes this move I expect to see a decent On-Balance-Volume 'buy' signal, alongside what will be a weak MACD 'buy'; other technicals are likely to remain bearish.
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"Bull Traps" For S&P, Nasdaq and Bitcoin

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So, in one fell swoop, the S&P and Nasdaq undid all of the work of 2026 with nasty gaps lower. In the case of the Nasdaq, the ascending triangle breakout reversed into a breakdown with new 'sell' triggers in the MACD, On-Balance-Volume and +DI/-DI. The relative performance of the index to the Russell 2000 ($IWM) showed an acceleration lower after last year's declines. Only stochastics (momentum) is holding on. If one was to be more honest of what's happening, we are likely broadening out to a trading range and it will take a loss of 22K to really flag a concern for bulls. Things are a little more problematic for the S&P. There is a definite 'bull trap' in play following today's significant gap down. Volume rose in confirmed distribution, so this wasn't some fake out to get weak hands out of their positions. As with the Nasdaq, the twin lows of October/November at 6,550 carries greater significance, and we are still a long way from a test...
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