A Leak in the Dike for the Russell 2000

Thursday was a strong trend down day with all markets falling back 1.5 to 2%. This has not happened for a long time so sentiment is moving to extremes. Lots of questions and rhetoric about this being THE top and how far the indexes will fall. The Fear-Greed Index has shifted to extreme fear. Blood in the streets.

All told though the major indexes are less than 3% from their all-time highs, except for the Russell 2000, off about 6.5%. So is the Russell 2000 about to lead a major sell off or is it just bearing the brunt of a mild move across the board? What to make of this crack in the support structure for it?

The chart above depicts the price action in the Russell 2000 ETF, $IWM. It had a sharp run higher after the election, and then settled into a rising channel at the end of November. It remained in that channel, slowly grinding higher, ever since until Thursday. After a bounce off the bottom at the start of the week, the price stalled when it hit the 100 day SMA and then reversed Thursday back below the bottom of the channel, ending at the low of the day. This took it below the 200 day SMA for the first time since June 2016.

It only stayed below 2 days on that trip. Will this be the same? Momentum suggests it could continue lower. The RSI is bearish and the MACD negative and falling. This is a big deal. A key area left to watch is the longer term horizontal support at 134. A drop below that would leave much less price history that could act to stop a drop until 124. Too early to call a major trend change, but certainly time to pay much closer attention, and polish off your risk management plan.

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