A little over a month ago, I wrote a piece saying to be careful shorting the small caps or IWM Shares Russell 2000 Index (ETF) IWM has rallied some $8 off of those lows and now it is one of the reasons I am asking the question “are we in a topping process”?
If you think about the overall U.S. stock market as a fine tuned, well-oiled machine, everything has to be running flawlessly for it to continue to produce. When a piece of the machine is broke or not running correctly, other parts have to work harder to make up for the section not running properly.
When the other pieces of the machine have to work harder, they become overheated and increase the odds for them to break as well. What is the point I am trying to make? Not all parts of the “U.S. stock market” machine are running flawlessly.
The small caps have been underperforming since the July highs were made. It is something I have pointed out in the fractal pattern that I am following that could lead to some dire consequences if it plays out. Even with the new highs being made every day-the markets are not running like a well-oiled machine.
In my years of trading, I have found that unless the broken piece fixes itself (small caps) the other indexes which have been performing well, will eventually follow the weak indexes lower. There is nothing impulsive about IWM’s move higher from the lows. It has accomplished what I needed to see (test of the highs) to allow for a much larger drop to hit.
Bottom Line
I am expecting the 109.90 lows to be taken out in the coming weeks/months.
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Are we about to crash? To find out, click here.
