The Gross Divergences between different equity indices were pointing to brewing trouble for a while. As one could have suspected, the weakest fall first and the SPX and NDX both broke down on momentum measures. Momentum breaks before price, so any bounces off the obvious trendlines should provide lower risk entries along with the new trend. Some comparisons could be made with early October - but there are some differences as well... Comments and Charts at: http://eagletrader.blogspot.com/2006/02/spx-ndx-momentum-breaks-down.html
We had a failed rally on the hourly and closed down again... Further strengthens the argument about a new downtrend in progress....
Thanks for your post and charts. How do you interpret the strength of RUT throughout this weakness in SPX, NDX, and Nasdaq? Usually RUT leads the way -- but this time showing a lot of strength. Seems to me that there is a short squeeze in small caps going on (or is this a continuation of some sort of a mania )?? It is not clear to me why the divergence of small caps vs. large caps....
I suppose the technical similarities of the latest action to Oct 4 have been discussed in detail... I noted on my weekend BLOG Posting that indicator reading were similar for SPX, but very different for RUT, NYA and many other markets... Even on the SPX chart, there is a key difference and that is in price action as is evident in the the MA ribbon chart. We have backkiss on the MACD, but not on the ribbons... FWIW, I suppose one more bounce is possible.. Oh Well Chart