The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out) which I published for members and 12631 subscribers this past Sunday.
Our three “keys” to the market from last weekend experienced a choppy/red week, and so did the broad market.
As a result, we are going to reiterate the thesis that headed into this week, it is hard to see the market sustaining any meaningful upside if the high beta, small market capitalization stocks housed in the Russell 2000 Index do not make a move at least over 1,180, if not prior highs of 1,213. Recall that while the S&P and Nasdaq made fresh highs this summer, the Russell did not. That still remains the case, and we await for the small caps to declare their next directional move to resolve this glaring, ongoing market divergence.
As the updated daily chart of the Russell indicates, failure to break over 1,180 keeps a potential major topping pattern in play, spanning all of 2014, with a close below 1,082 necessary to confirm.
Beyond that, last week’s choppy action saw Thursday’s sharp rally more or less given back in its entirety on Friday, driving home the point that bulls have yet to sustain strength in the Russell for a while now.
Moving on, the weekly timeframe for the marquee, liquid, leading momentum issue Tesla still shows the potentially bearish reversal candlestick from two weeks ago, known as the “shooting star” (yellow arrows point to it, where price begins the week near the highs and finishes near the lows after a prior uptrend). Last week’s grinding action was a textbook “doji,” essentially a stalemate and not yet declaring the next directional move for the stock.
Should Tesla follow-through lower in the coming week, however, it would likely serve as a sign that the market is adopting a more cautious approach to momentum stocks. Should the market, however, shrug off the shooting star candle by pushing Tesla higher yet, or instead quietly grinding sideways, it would stay consistent with the resilient bull we have seen heretofore.
Thus, against this backdrop, TSLA‘s price action remains a key to the coming week.
The third key to the coming week is…
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