The Russell 2000 is another one of those key indices that traders can use to gauge risk sentiment. By keeping tabs on it, one can hope to better understand overall market sentiment in general and thus, by consequence, money flows.
Last month, it appeared that the index was in real danger of breaking down as it flirted with the February low before it staged an impressive recovery. However, it has failed ( as of today) to go on to make a new all-time high. As a matter of fact, it has stopped short of reaching its previous peak and is currently down near 0.85% as I type up these comments. This is a warning from a technical analysis aspect that the market is showing some signs of fatigue.
I have noted a POTENTIAL ( and I am heavily emphasizing that this is a 'potential' ) Head and Shoulders pattern that could be emerging after a very long and protracted run higher. I am not one that jumps and shouts about the formation of everyone of these patterns as does seem to be the habit of too many novice analysts, but when one of these patterns arises after a very long trend, either higher or lower, it pays to monitor it closely.
I have noted the left shoulder, the head and a potential right shoulder. The pattern would however only be confirmed by two successive closes below then neckline noted. That is a good way's off just yet.
One of three things will happen -
1.) the pattern will be confirmed by two successive closes below the 1080 level which would generally indicate a more extended move lower.
2.) the market will move down and test the neckline and bounce higher setting up a potential consolidation pattern.
3.) the market will briefly set back before going on to make yet another all time high.
Notice, I am not making any predictions here - I am merely noting probabilities that we as traders need to be alert to.
The indicator I am using has not yet generated a sell signal in spite of today's move lower in the index itself but it is up near levels commensurate with previous downturns that have occurred over the last 9 months.
I am also noting that the VIX is sharply higher today for some reason. Some nervousness is creeping back in! I wonder if it might have anything to do with the fact, that Yellen, Carney and Trichet are all on the record recently talking about the economy growing slower than anticipated? Who knows - but whatever the reason - equity bulls seem unwilling to drive stocks sharply higher right now.
It is going to be interesting to see the GDP numbers.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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