Trading Ranges Hold Despite Losses, But Breakdown Coming

We are seeing a pick up in trading volume with selling dominating, but we are not seeing a new downward trend, at least, not yet. News headlines paint a harsher picture of market action, but it hasn't borne out yet. The Russell 2000 (IWM) has drfited towards range support on a sequence of lower highs (but not yet lower lows). I expect this squeeze to play out with a solid red candlestick breakdown (and a good short trade) with a target of the 200-day MA. This should turn technicals net negative, and then, we can start to see if a new bear trend forms.

The S&P is also testing range support, but does have the early week spike low to work with. Recent volume has been modest, although technicals are net negative - including a new downtrend in On-Balance-Volume. Moves into spike lows typically result in a loss of the spike low if the day closes inside this spike. A loss of 6,800 opens up a short opportunity with a stop on an end-of-day close above 6,800.

What might offer more guidance is the equal-weighted S&P. It established a clear trend break, followed by two successful tests of the 50-day MA. Given the frequency of the two 50-day MA tests I would not be surprised if there is a third, and on that test, the 50-day MA breaks. Technicals are mixed, but for now, one would be arguing for a trading range, similiar to the one for the weighted S&P.

The Nasdaq is holding up a little better than peer indices. Yesterday's buying volume ranked as accumulation, although the 20-day MA is playing as resistance and this moving average is fast approaching range support and the 200-day MA. This squeeze will result in a sharp break, and when it does, one can trade in the direction of the break.

Bitcoin made the initial break higher, clearing its 20-day MA in the process. It has since eased back a little but hasn't risked losing the break higher. The initial target remains the 50-day MA and then $85K, which will likely coincide with a test of its 200-day MA.

There are short trades in the making, but with markets caught in trading ranges any pre-emptive trade runs the risk of whipsaw. Longs have Bitcoin to work with, which we may be the more stable long trade.