For the last few weeks, small and mid-cap stocks have outperformed the larger (DIAs and OEFs) stocks. However, last week we saw some interesting and bearish technical developments in the IWMs First, notice the price spike at point A, for which there was no follow-through (prices didn't continue the advance). While we saw the other averages spike at the same time, they did not do so in this degree. The lack of follow-through signaled possible lower prices were ahead. Second, look at B. This was the second top on the weekly chart giving the IWMs a double top for the week. Also note the triple top at B -- another topping formation. Finally, notice the overall arc of prices, meaning the IWMs formed a rounding top pattern (see C). In short, the average that led the market higher gave several important sell signals last week.
Looking at the daily chart we see the following.
First, what is the right trendline -- A or B. I prefer A because it connects more lows along the length of the trend. While B is still a valid trendline, it does not touch any lows aside from the first two early in the trend.
Notice the large number of upside gaps that existed early in the rally. However, the upside move stalled at D as prices have been stuck in a range for about the last two weeks. In addition, the MACD has given a sell-signal and the A/D line has stalled its upward advance.
Let's add in the SPYs
The market was in an uptrend, marked by line A. However, on Thursday, the market gapped higher at the open (B), moved to a new high (C) but then moved lower and closed below trend line A. That's the kind of daily action that signals possible problems.
A.) The primary uptrend is still in place, although prices are right at the trend line.
B.) The MACD is about to give a sell-signal and
C.) The A/D line is moving sideways.
