click on any of the links below to view the live charts of each index or stock discussed.
Small cap stocks continue to underperform and will likely do so as the $SPX:$RUT ratio appears to be in the very early stages of a mean reversion. The recent wedge overshoot on the Russell 2000 Index ($RUT) has also been confirmed by prices moving back inside the rising wedge pattern yesterday with additional downside follow-thru today. Wedge overshoots often appear in the final stages of a bearish rising wedge pattern when strong momentum temporarily carries prices above the wedge pattern, only to see prices fall back inside the wedge and continue lower to break down below the pattern. Of all the diversified US indices, the $RUT will probably fall the most over the next few weeks should a broad market sell-off take place.
I have two variations of bearish rising wedge patterns drawn on my S&P 500 daily chart. On the more liberal pattern (solid white lines), prices have recently found resistance on the upper wedge line while on the alternative wedge pattern (dashed yellow lines), the $SPX is still just atop the wedge after recently overshooting it. As such, the top of the yellow wedge is now support and any move back inside the wedge will likely be the catalyst for additional downside in the broad market.
The Nasdaq 100 Index also has two alternative rising wedge patterns and as with the $SPX & basically all other US Indices, negative divergences continue to persist below those patterns, a warning sign that the odds for a correction continue to remain elevated at this time.
Apple (AAPL) is trading lower today following rare consecutive inside days. All of yesterday’s price action in the world’s largest company was contained within the range of the previous day’s’ price range which itself was contained within the previous day’s bearish engulfing candlestick. Back to back inside days are uncommon and when found at the end of a large uptrend (AAPL was up nearly 40% off it’s June 28th lows when Tuesday’s large bearish engulfing candlestick marked a 2013 high in the stock) , as part of 3 consecutive days of bearish price action, increases the odds that at least a near to intermediate-term top may be in place for the largest component of both the S&P 500 & Nasdaq 100. As of now, prices are flirting with the uptrend line generated off of the Sept 17th lows. A solid break and close below that level will further add to the bearish case for AAPL.
The Herbalife (HLF) Active Short Trade continues to move sharply lower today following yesterday’s break down below the primary uptrend line, which confirmed the entry but still looks to offer an objective short entry at current levels based on the distance to both T1 & T2.