In Any Language, Market Puts Up A Cautionary Sign

If ripened fruit has not been picked from a tree, it will eventually fall.

For those unwittingly standing beneath that tree, falling fruit can cause a nasty bump on the head.

Considering how overripe the market and economy have been, not surprising many traders got a nasty bump on their heads.

Let’s begin with the 4 potential scenarios in the Russell 2000 IWM, we watched for a setup on Friday:

Some sort of bottoming formation on the daily (the 150 price level)-a classic reversal pattern with confirmation-til then don’t take a risk.

Then, if we get good volume buying, after days of negative floor trader pivots, we need a close above R1.

If no bottoming pattern (no reversal but could still digest with an inside day or some level of consolidation), watch for a move near 150.

If number 3 happens, then watch for a bounce, which could be more of a deadcat bounce. If so, that will be the bounce to sell into.

Number 1-Nope-IWM made a new low for the week and struggled to stay green.

Number 2-Nope-IWM never cleared R1 even when it was green.

Number 3-Nope-not an inside day but did get closer to 150.

Number 4-Can we still see a deadcat bounce?

On Friday morning I did an interview on Benzinga.com’s morning prep show. (Link below). The host asked me why I am so focused on the Russell’s versus the S&P 500 or NASDAQ?

Great question.

The S&P 500 has a huge impact on the market as well. After all, it represents the Fortune 500 companies and is the most used benchmark. For instance:

SPY versus Commodities ratio, which I wrote about last week.

How one’s portfolio performs versus the SPY. A traders’ success or lack thereof is measured by his/her’s overall performance relative to the performance of the SPY.

Investors look at the number of stocks above or below the 10 day moving average in the SPY as an indicator of strength or weakness.

The Russell is comprised of 2000 small cap stocks that are 99.86% located in the United States.