Just how low can this market go and how many more support levels can it break?
Let’s step out beyond the S&P 500 and the Dow Jones to focus on the Russell 2000, a small-cap index to get a sense of where stocks have traded.
We’ll get an initial perspective from the Weekly Chart:
To compare with the S&P 500 and Dow Jones weekly charts, see our prior update earlier in the week.
The Russell similarly peaked mid-2015 and has broken price and moving average support levels through the remainder of 2015 and now especially at the beginning of 2016.
On the Weekly Chart, we see the breakdown (so far) under the rising 200 week SMA at 1,056 and a retest of the spike reversal low from September 2015.
A continuation downside pathway exists toward 1,000 if the current 1,050 support fails again.
We can turn to the Daily Chart for additional insights and shorter-term targets:
The September into October 2015 sell-off ended with a “Double Bottom” or strong positive divergence (see the earlier post today on divergences at support as catalysts for bullish reversals).
However, price merely rallied toward 1,200 which was just under the falling 200 day SMA.
The fact that price continues to carve lower lows and lower highs while remaining under the falling 200 day SMA solidifies the Russell 2000 as being in a DOWNTREND.
We’re focusing on the 1,050 level as a catalyst bounce where if buyers fail to step in after a week of collapse, we can see this sell-off extend toward 1,000.
Here’s the tradable IWM ETF for additional reference (and volume):
Volume is spiking as Distribution takes hold of the market (higher volume on sell-swings).
Comparable levels include the $104 support pivot and if under $104, a bearish downside pathway develops toward $100.
Even if you (like me) only focus on the S&P 500 and Dow Jones, it’s helpful to look at the Russell and NASDAQ for additional insights and planning.
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Corey Rosenbloom, CMT
Afraid to Trade.com
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