The relief bounce for indices finally hit the first potential reversal point with 'black' candlesticks in the S&P and Nasdaq, and a bearish harami cross for the Russell 2000 ($IWM). Trading volume in the Russell 2000 was lighter than previous days, a positive sign for those looking for more from this bounce. Momentum indicators have moved out of an oversold state, although I like to see a cross of the mid-line before I consider the situation to be under the control of bulls. The S&P closed the day with a more bearish 'black' candlestick, a common reversal candlestick on a bounce, but more so at a new high. Technicals are weak and net bearish that increases the chance for a bearish reversal. Watch for a gap down on the open. It was a similar story for the Nasdaq as for the S&P; a bearish 'black' candlestick on net bearish technicals. If indices do start heading lower, watch for the measured move targets which for the Nasdaq and

The Russell 2000 ($IWM) has been guiding towards this, but the positive reaction in the Nasdaq and S&P following Friday's gains in the Small Caps index is not enough to suggest a swing low is in place for these indices. For starters, buying volume was light and momentum remained firmly oversold. The S&P did offer an opportunity at the 50% Fib retracement, and Fib zones give the best indication the decline has found a sustainable low, or at the very least, not one prone to further panic selling.

The divergence in the action between the Russell 2000 ($IWM), and the S&P and Nasdaq continues. If the Russell 2000 could go on to tag its 200-day MA, particularly if it's done on a bullish reversal candlestick, then there would be a good trade opportunity on offer here. Even a rally from here might be enough if there is a tight stop.

While it wasn't the recovery I would have liked, the Russell 2000 ($IWM) managed to resist extending its losses. The index did record a loss, and volume was confirmed as distribution, but I would be a little more optimistic going forward; albeit, a test of the 200-day MA remains favored.