A couple of weeks ago I mentioned that the small caps had room to run and the expected target was 116-118. IWM iShares Russell 2000 Index (ETF) is now at the lower end of the range, but it has traded in a very suspicious manner.
In the past, when the other U.S. indexes pushed higher like we have seen and the small caps lagged, they would then go into a euphoria style move and play catch up to the other indexes.
Divergences: Red Warning Flag
We have not really seen that style move and now we have some serious divergences going on between all of the indexes-including overseas. When everything isn’t running together in sync, you have to put your “suspicious hats” on.
Volume has been very light and I am starting to see the perma-bulls trying to justify these levels, which has always been a red flag for me. I really only see them come out right as we are making new all-time highs on the SPX and their go to line is-“if the fed raises rates, it’s a good thing because it means they think the economy is getting better.” It is the same old saying just regurgitated at different levels.
Where’s The Volume?
But with the DAX (German index) lagging along with the small caps, I would not be placing too much faith in the sustainability of this move. Volume confirms moves and we have not seen any confirmation with volume.
There is a fractal pattern I have been watching that has been followed to a T. With the small caps and DAX lagging as the SPX stretches to new all-time highs, this pattern is being placed on the “high probability” alert. There are some dark clouds ahead and these index divergences are throwing out warning signs.
= = =
To see the fractal pattern and what will be playing out in the coming weeks click here.
