Thursday, September 9, 2010

Small Caps Still Lagging

While the pattern is unclear in most stock indexes, it seems pretty straightforward for the IWM, Russell 2000 ETF. If the market is going to go down, it must do so tomorrow or Monday without exceeding today's high, which will leave a 3 wave rally from the August low after reversing at trendline resistance. If the IWM falls below 61.80, the 8/27 high, we can be almost certain that a more serious decline is underway.

Most indexes were up today, but on much lighter volume, i.e. there was not much conviction after the supposedly positive drop in unemployment claims this morning.

The Qs have fulfilled the requirements for the triangle by coming all the up to trendline resistance in wave [e] up, and, by the way, topping only 0.06 above the January high of 46.64. It is just truly amazing how much impact the January range has on the trading action for the rest of the year. Now that we are in the month of September, all of the major US stock indexes are below the high of their respective January ranges, except for the transports. If the indexes were trading above that level, our overall perspective would be much different.

Notice that the August low for the Qs was 42.97, while the January low was 42.63. My hunch is that when we finally begin selling off in wave C down that the most likely target for the Qs will be the difference between the April and January highs subtracted from the January low, or 42.63 - (50.65 - 46.64) = 38.62. Thereafter, a return to the January high by the end of the year would be the next likely move.

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