Warning from U.S. Small Caps? Is it still a leading index?
For a long time the Dow Jones Transportation Index (DJT) and Russell 2000 ETF (IWM) were used as leading U.S. market indicators. Now with all the federal market manipulation (via the bond market) I am not sure how much this still holds true. Assuming the IWM still gives useful insight, I see reason to pause the buy-everything exuberance and tread with great caution.
RSI on the weekly chart shows a definitive bearish divergence - three higher highs and lows in price while RSI was making lower highs and lows. On the daily chart you can see that price has moved up and has the 20sma as resistance right now. Yet RSI on the daily is at 50 and can go either way. Two bearish candle patterns are marked on the hourly chart. RSI dipped below 33.33 and is meeting bear resistance now.
What does all this mean? Keep your eye on IWM next week. People with more data than me have pointed out that the Dow's rise in March was with decreasing breadth. VIX dipped below 18 today, which is either the calm before the storm or a sign that market jitters have calmed (VIX staying below 20) and April will see markets move higher.
How can you use this information? Stick with day trades and limit or stop swing trading until you know direction. Keep position sizes small. If you are an active investor, know your exits, take profits, and keep some cash. Whatever happens with IWM and the other markets will be influenced by activities in the much larger bond market. I imagine myself in a rowboat on the ocean, trying to bring home a few fish. I know there are whales and sharks and giant creatures below, but I cannot see them. I prefer to take my catch and go home happy. If I stay out too long I risk having my boat torn apart by the giants, and they will take my fish too.
RSI on the weekly chart shows a definitive bearish divergence - three higher highs and lows in price while RSI was making lower highs and lows. On the daily chart you can see that price has moved up and has the 20sma as resistance right now. Yet RSI on the daily is at 50 and can go either way. Two bearish candle patterns are marked on the hourly chart. RSI dipped below 33.33 and is meeting bear resistance now.
What does all this mean? Keep your eye on IWM next week. People with more data than me have pointed out that the Dow's rise in March was with decreasing breadth. VIX dipped below 18 today, which is either the calm before the storm or a sign that market jitters have calmed (VIX staying below 20) and April will see markets move higher.
How can you use this information? Stick with day trades and limit or stop swing trading until you know direction. Keep position sizes small. If you are an active investor, know your exits, take profits, and keep some cash. Whatever happens with IWM and the other markets will be influenced by activities in the much larger bond market. I imagine myself in a rowboat on the ocean, trying to bring home a few fish. I know there are whales and sharks and giant creatures below, but I cannot see them. I prefer to take my catch and go home happy. If I stay out too long I risk having my boat torn apart by the giants, and they will take my fish too.
Comment:
Price did move higher since I posted the chart, but directional volume and stochastic show that buying strength is fading. I see strong resistance at 226 on 5m/15m charts and am buying swing puts. On the daily chart price closed over the 20sma to start the week but I must wonder if price is completing the right shoulder of a H&S top and will move lower. I have 226-227 as daily resistance.
