Sunday, November 02, 2008

Expecting a pullback then follow through

Just a quick post on the small caps tonight. Last week the small caps (IWM) broke down to new five year lows out of a symmetric triangle and it looked pretty bleak for the leading index. That move reversed it's self and we got a sharp move higher. Some aspects of the IWM chart look pretty good; obviously the failed breakdown, then there's the CCI crossing zero, stochastic buy signal and multiple positive divergences, but I am also seeing some reason for caution. The volume has been pretty much average this whole time, not the surge that the bulls should be hoping for. Also, the lower trend line of the symmetric triangle and the apex lie just above would should provide significant resistance around $55. Based on this chart I'd expect a pullback early on this week and then hopefully we'll see some follow though after the election and an intermediate term uptrend will be confirmed. As mentioned before, I am expectiong this rally to last for 3-4 months.

Disclosure: I own IWM calls.

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