Is the Death Cross Chatter About to Become Loud?
It happened. The Russell's 50-day average crossed under the 200-day. That's a Death Cross. So, what's next?
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I saw my first ‘Russell Death Cross’ comment on Thursday because the fifty-day moving average crossed under the 200-day moving average. Since we covered this the other day, I won’t rehash it too much, but I fully expect if the Russell 2000 cannot rally on Friday and/or Monday, this Death Cross chatter will become loud.
Speaking of the IWM/Russell, I was asked a few questions about the chart itself that I thought I would address today. Yesterday I noted there was resistance at 215. Someone asked why we couldn’t see a rally back to 225 to complete a head and shoulders top (drawn in black).
That’s entirely possible, but not all head and shoulders tops are so symmetrical, so a rally to 215 would have an aborted or shortened right shoulder (if you were looking for that pattern), which would work, too.
Instead, I am focused on that blue line at 215, which is resistance to me. But that brings us to the next question: doesn’t the top IWM broke down from when it broke 215, measure to 195, which is where we got to? It does measure there. But just because we reached a measured target, we do not ignore five or six months of resistance. That would still have to be eaten through. It’s like that old joke: how do you eat an elephant? One bite at a time.
Had we gotten some real panic, I might—might—be willing to ignore the resistance, believing that everyone had panicked out. But without any panic, we have to assume that there are sellers who are waiting to get back to even. At the very least, the first time up there.
So that’s where I stand: a rally to 215 on the IWM ought to see resistance up there. If the market is overbought when it reaches there—if it reaches there—and sentiment has shifted to a more bullish tone, that would give me more confidence that 215 will be problematic.
The alternative scenario is that we get some panic in the next few weeks because that would make all the intermediate-term indicators oversold and would make the already bearish sentiment more bearish.
But that’s not my view; my view is that we are still not overbought, so we give it a chance to rally again.
As for Thursday’s action, I feel like a broken record when I report that none of the indicators changed. Oh, the NYSE Overbought/Oversold Oscillator nudged up over the zero line. You need to squint to see it, but that means the verbiage changes from oversold to not yet overbought. Either way, it’s been a pathetic rally thus far.
