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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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Bitcoin Surge As Russell 2000 Shapes A Swing Low

Bitcoin is again on the move, looking more bullish than my initial "bullish outlook". I had looked for a more pronounced 'bear trap' on a duck to the 50-day MA, but instead buyers stepped in and shorts were forced to cover buy. This is excellent right-hand-base development on the longer weekly chart, and it's hard not to see Bitcoin challenging $125K by 2028, if not sooner. It will still be volatile, but long-term investors waiting for a new entry opportunity should wait for prices to narrow again in low volume, then buy-and-not-look-back. Long term buyers should not get sucked into the daily machinations of cryptocurrencies, and should have a proper long term outlook of years - not months or weeks... Anything shorter will need to use adequate risk:reward. If I was to stick my neck out, I might look for $100K for end-of-year and measure risk based on that target. As an asset, I hate cryptocurrencies (and the sphere around them), but they do appear to be influenced more by technicals than other asset classes.

As for the indices, the Russell 2000 ($IWM) posted another 'bullish hammer' to follow that of Wednesday's - negating the bearishness of Thursday's black candlestick. Stochastics are firmly oversold, and while technicals are net bearish and trading volume has picked up, I think we have reached a point of stability around $285 that should give bulls something to work with for an end-of-year rally back to $300s. If $280 was undercut, then look for a spike low test of the 200-day MA that would offer a strong bottom. If I had a criticism of the current action is that it's in a bit of a no-mans-land from historic support.

The other index looking to shape a swing low, and its near historic support is the equal-weighted S&P ($SPXEW). Buyers are back in around 8,600 from where the July rally was launched. Glass-half-full types might just see this as the makings of a reversal head-and-shoulder pattern; if this was the case, any rally won't make it past 8,725 by the close of business - intraday breaks don't count. If we got an end-of-day close above 8,750, I would be more confident of a move back to challenge the last swing high in the 9000s. We will need to keep an eye on action around 20-day and 50-day MAs too, just in case they add their own layer of resistance.

The S&P is an interesting position. Despite the negative headlines of August, the index has been quietly doing its own bullish thing. Then we had last week's sizable drop (interestingly enough, not on any pick-up in volume), before rallying to leave a 'bear trap'. Friday's action was disappointing. We had a 'black' candlestick doji, at the 20-day MA, that stalls the momentum for the rally from the 'bear trap'. I have marked it as a potential short play, but only because it finished bang on the 20-day MA. I don't see this as a bearish index, it would just be an aggressive trade for a couple of days. If you were holding a long position I wouldn't be a seller, and certainly not if a long-term holder.

The Nasdaq is also closed with a doji, not sure I would see it as a breakout (doji dont make for good breakouts), and the larger trading range remains the dominant pattern. Technicals are mixed, but what I would like to see a new MACD 'buy' signal next, quicky followed by a new 'buy' trigger in On-Balance-Volume which has been trending down all summer.

The quiet burner is the Semiconductor Index. AI will go through a period of consolidation and this index appears to suggest things are settling. We have a 200-day MA fast approaching and we are seeing good stability above 10K. Those who missed surge and are looking for a long term play, then the next test of the 200-day MA might be the one.

Going forward, we are seeing good stability across indices, with Bitcoin providing bulls with a nice injection of trading action. The next big long-term buying opportunity won't come until we get a couple of years of trading below 200-day MAs, and early 2025 didn't deliver on that (tarriff wars). So, I still think we need this reset in the not-so-distant future, but until then, tests of 200-day MAs are the best long-term buying opportunities. And, as I had been saying about Bitcoin, tests of *200-week MAs* are even better... I have seen a nice uptick in readership this past week, so if you are new to me I can be followed on X.com or Stocktwits.com @fallondpicks.

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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

Sellers Accelerate Action As Confirmed Distribution Kicks In

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Aside from Bitcoin, we are not seeing too much technical damage, but we are seeing a pick up in the volume of seeling. Moving averages will be key in the near term before we have to start looking at horizontal price support and swing lows. The Russell 2000 ($IWM) undercut its 20-day MA, but hasn't yet challenged support defined by the December swing high. The MACD is on a 'sell' trigger and +DI/DI and On-Balance-Volume will likely do the same Monday if selling continues. Friday's selling registered as confirmed distribution, which is a worry for Monday. It's the strongest index, but if this falls under $257 we would likely be looking at a new trading range bound by $245 and $270 that could last a number of months.
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Bulls Were Unable To Build On Morning Optimism

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After the Fed driven sell-off that delivered support breaks for some of the indices there was an attempt by bulls to stage a bounce, but traders weren't able to build on the sizable opening gaps, and some indices drifted lower by the close. The Russell 2000 ($IWM) lost the most ground off the open. However, today's close was enough to regain support, leaving yesterday's action as a potential 'bear trap'. Technicals are net bearish oversold. And today's buying volume was below yesterday's selling (distribution). The S&P finished the day where it started, which is also 20-day MA resistance. Aggressive traders could go with a swing trade as the next move could be sizable (particularly if the move is higher). The Nasdaq is dominated by the trading range, but within that we have a consolidation triangle. As it stands, the index is at resistance of this triangle, and given recent selling volume I would be looking for a move to close today...
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