IWM Leading Decline

Market technicians who follow IWM are aware of its propensity for reversing its trend ahead of SPX and DJIA. This was particularly obvious at the last market top when IWM printed its final high price on 8/31, while SPX did so on 9/21, and DJIA on 10/03.  

Last Friday, the major indexes re-tested their lows, but our leading index (IWM) closed the week at a new low. That is a warning that the decline of SPX which is already approaching one hundred points is most likely not over, although a brief bounce could take place before we go lower. The hourly indicators are just beginning to show some positive divergence, but it is not the kind of pattern that normally leads to a significant reversal. More work has to be done in the daily and hourly indicators before they are in a position to forecast an important low. And we are supposed to be in a bullish seasonal period which normally generates a Xmas rally! This year, it is going to come late and turn out to be a New Year’s rally.

All this means that the previous low of 2583 is unlikely to hold, and a new low for wave A (which keeps on being pushed forward and lower) will be made, but once in place, it should be followed by a good countertrend rally.  

Chart Analysis  (The charts that are shown below are courtesy of QCharts)

SPX daily chart  

The support level which had held the first two lows of the correction above the purple channel line was weakened on the last short-term decline to 2583; this was an intra-day low and the index did close above the channel line at 2637. However, the ensuing rally met with serious selling and could not even reach 2700 before turning down, and the index is again approaching the last low. This almost ensures a new low for SPX on this move, although 2600 could hold it for a few more hours.  

The daily oscillators showed minor divergence at the 2583 low, and this led to the ensuing bounce, but they have all turned down again and the two most sensitive ones have already made new lows while SPX is still above 2583. This is another form of negative divergence which should result in a new low before this move is finished. There are several possible targets for this decline, with the most extreme one just above 2500. I have been wondering if we might not have to break below the February low of 2533 to confirm that we have started a bear market before we complete the A-wave.  

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Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of ...

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