The Russell 2000

In the last week or so I've noted during market updates that the IWM (Russell 2000 ETF) seemed to have more underlying support then the other averages, I believe I know why-the R2K was the only average that hadn't made a new high and it had a lot further to travel to make up the ground.

Yesterday the R2K did make a breakout high....

 Here's resistance at the red trendline and yesterday's breakout high, it was not a strong close as it left an upper wick on the candle, meaning higher prices were rejected. As you can see, RSI was negatively divergent at the first top and even more so at the breakout. An important part of judging the validity of such a breakout is the concept of follow through, meaning today the R2K should have posted a higher closing high then yesterday to show that buyers were serious about the breakout, instead it looks more like what I expected it would be, a probable head fake breakout to lure in longs as we saw yesterday and leave them holding the bag as we saw this morning on the gap down.

 Unfortunately my charts aren't loading in the proper order, but we'll work around it. This is the 5 min chart of the IWM, it saw a small round of accumulation and then went negative and especially so in to yesterday's breakout. Today's and yesterday's  leading negative divergence suggests that the buyers yesterday were being used to sell in to price strength or short in to it.

 Not only did the R2K not confirm with a follow through move, it didn't even fill the gap today, as you can see by the 1 min chart, there was some early accumulation, after that it never stood a chance as 3C went more and more negative as intraday highs were reached until it reversed toward the end of the day.

 Here's the gap it didn't fill, it didn't even move above today's open, apparently hitting resistance which is nothing more then selling, the same thing we see on the 3C charts above.

 Look at the trend of the R2K, MACd has gone negative, there was a period where the average was walking the upper band which is a sign of strength, but that didn't last long before the R2K went lateral and fell. My proprietary "Demark inspired" indicators gave 2 sell signals, one right before the market fell early in the month and the second as the R2K broke out yesterday.

 My 1 day Trend Channel has held the entire uptrend, remember what I said about stops in the Trend Channel in the CAT post). In addition, the average true range of the daily high to low in the R2K has been cut in half from 20.50 points per day to 10.50 points per day. If we apply the basic concept of candlestick charting, this would tell us the psychology in the market is backing away from higher prices and leaving the market open to a reversal on a loss of momentum.

 Even if I'm very generous and use a 2 day Trend Channel which easily holds the uptrend, we still have a stop out and the last two days form a doji shooting star, a bearish reversal candle.

 Here's the 30 min 3C chart, note the intensity of the divergence in to yesterday's breakout and the leading negative action today.

The 15 min chart shows the entire cycle, look at the negative divergence in yesterday's breakout, this would imply that the breakout is a head fake and used to sell/ short in to price strength.