Ok so its pretty clear that stocks are headed lower but what about the details? The charts, the charts! Lets start with the bonafide leading index, the Russel 2000 seen above. As you surely recall, the small caps (R2K) were the first to start the five year bull market and the first to enter a bear market of the big four indexes (dow, nasdaq, s&p, r2k). The small caps actually look much better than the dow by remaining well above the 2008 lows. On the other hand, things are looking pretty bearish after IWM had a failed breakout above it's declining 200 dma. This formed a mini head and shoulders pattern and ended the last significant bear market rally. The only question in my mind is whether the index will throw back up to resistance in the $72-$74 area before crashing down to the 2008 lows ($64) or drop straight there next week.Looking at the dow weekly (below), you can see what I mean about the small caps looking better. Last week the dow broke down to new lows for the year and closed significantly below its lower bollinger band on the weekly time frame. This situation looks an awful lot like the capitulation bottom in January which would mean a big drop then a huge bounce sometime in the next few weeks. The market is getting oversold so a big bounce is assured, but the question is how far will we drop first? I think the odds are good for a bounce near the 2006 lows which also match up nicely with a trendline connecting the last two bear market bottoms. Rather than describe it for you, just look at the chart and know that I expect 10,700 soon (like next week or the week after):
And by the way, that massive head and shoulders pattern on the dow completed by any measure. This is not a good time to be owning US stocks...Disclosure: No positions
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