- Sellers are in control of the Russell 2K issues.
- RSI, OBV bearish divergences look to be playing out.
- [[IWM]] has exhibited a common bearish technical pattern which is to fall below the 50 day average (after a long run-up) and then test the moving average from below. I see this pattern as a sign that professional distribution is under way.
- Support is at 55.00, and a climb back above the 50 day average would be very bullish.
Where has this money gone?
The institutional support appears to have moved into large caps, as evidence by the action in [[DIA]] .
While [[DIA]] is exhibiting some bearish divergences, they are not nearly as significant as those that appeared recently in [[IWM]] .
I need to run some tests where we are long DIA when IWM is below the 50 day average and DIA is above it, but those tests will have to be run late this weekend or early next week as we are off to the mountains for a little mini-vacation.
Have a great weekend!
Thanks Wood. Would you say this movement away from small caps could imply the volatility we’ve been experiencing is about to diminish?
That’s a good question, Mr. Thaler. I have never really thought about it like that, but that makes sense.
I’d say its a defensive move into issues with more cash and less debt.
Defensive postures intuitively would seem to lead to higher volatility, as defensive moves coincide with an increase in fear, which typically brings volatility. Whether data or testing would bear that out, I have no idea.
I think we all know that the volatility will reduce sometime in the near future; I’m interested what the corresponding movement is going to look like. If you’re right and this is defensive, then the rocky sea’s will continue, but I’d expect a similar sort of flight to blue chip securities before the recession ends.
I guess hindsight will be 20/20.