Distribution Strikes But Russell 2000 ($IWM) Breakout Holds

Friday's losses gave back some of the early week gains, but losses weren't enough to derail the bullishness on the week.

The strongest index was the Russell 2000 ($IWM). It started last week pressuring $252 resistance, managed to break mid-week, but got caught up in the Friday sell-off in Semiconductors. Technicals are net bullish with momentum in overbought territory - a key driver for breakouts, and Friday's loss didn't weaken that. For Monday, watch for a spike low below $252, where anything sub-$250 might be an opportunity to grab a long position for an upcoming Santa rally.

On Thursday, the S&P offered a solid looking bull setup, but Friday pushed the index back to "Go", with no $200 for passing it. Much of this was down to Tech weakness, but with other sectors like Financials taking up the slack and driving sector leadership, there might yet be a flourish for the index. However, longer term, we do need a move back to 200-day MA, and the S&P tends to do this every 2 years. The may mean it will be 2027 before we see this, but if Tech falls faster than other sectors can take up the slack, then it could come sooner.

If we look at the equal-weighted S&P, we can see Friday's losses didn't reverse its breakout (trading much like the Russell 2000).

The Nasdaq is slowly (and then quickly) falling out of favor. Technicals have started to shift slowly back to bears with a new 'sell' trigger in ADX. The index is sharply underperforming peer indices and I would expect this loss to accelerate if Semiconductors continue their decline.

Speaking of the Semiconductor Index, it gave up 5% Friday on weakness in Broadcom and Oracle. On Monday, it will get to test converged 20-day and 50-day MAs, and if these MAs can successfully hold (likely on a spike low), then there is a good chance for a strong end-of-year finish. But it seems an unlikely ask, and a move back to the 200-day MA seems overdue.

If we step back and look at the long term picture for the index and look at Fib retracements, we see two congestion zones; one around 5,450 and another around 4,230. Both levels are important reversal price points and should be considered significant support. Friday's action may now be the start of the next decline to one of these two levels.

Also influencing Tech stocks (to a lesser degree) is action in Bitcoin. I had mentioned the split between a bullish ascending triangle and bearish bear flag, and the bearish bear flag may be winning out. Technicals are more bearish and relative performance has been steadily declining. The MACD is on a very weak 'buy' trigger (it needs to be above the bullish zero line to be strong). A retest of $80K may give it a second chance, but heavy losses are typical in Bitcoin's price history.

For next week, look for Semiconductors and Bitcoin to continue to slide and see how well both the S&P and Russell 2000 ($IWM) hold up in the face of this selling.

---

Follow Me on Twitter


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?

Image
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.
Read more

Sell The News. Nvidia Can't Save Market - Worse To Come?

Image
The pre-market optimism didn't last long, but when markets are coming off an extended high it's hard for buyers to return there, even off the back of 'good news'. The Russell 2000 ($IWM) opened bang on resistance at $237, and then it was all down from there. Volume surged in confirmed distribution, leaving the 200-day MA as the next logical support level.
Read more

Archive

Show more