The Biotech iShares (IBB) ETF ran into a resistance zone between the 50 day moving average and $333.00 area. This sector has been a momentum leader, so a shift in trend could have a negative effect on the broader market.
The sell-off in the last two hours of trading created a dark candle on the daily S&P 500 index chart, and possibly the final component piece of an eveningstar bearish reversal formation. The eveningstar pattern consists of a large white candle, followed by a narrow opening and closing range “doji” candle and completed by a large dark candle. Today’s overall range was not large relative to Wednesday’s white candle, but the presumed message is similar, a transition from bullishness-to-bearishness. The broader market just finished its strongest month in four years, so, as is the case with all candle formations and technical patterns: confirmation is a requirement.
The market action this week was subdued, but there were some volatile intraday moves and those moves were all initiated in the 2:00 o’clock hour. The 10 minute chart of the S&P SPDR (SPY) illustrates this, including today’s sharp decline into the last two hours of trading today.
Here is a link to my analysis of the Caterpillar chart published on TheStreet this morning.
The momentum this month in the broader market has been powerful and has laid waste to several key resistance levels. In yesterday’s session the major averages were all up over one percent but the Russell 2000 index, the underperformer until now was the clear outperformer, with a gain of nearly three percent.
The daily chart of the Russell 2000 iShares (IWM) shows the ETF breaking out of the narrow consolidation range it had been trading in for the last few weeks, on volume that was 74% greater than the 50 day moving average of volume. It is important to the health of the rally that the small caps participate along with the broader indices.
It is also important, based on Dow Theory that the transports engage as well, and they are lagging at this point in time. The chart shows the Transportation Average ($TRAN) testing the bottom end of a small channel similar to the one on the Russell chart.
Also, keep an eye on the Germany iShares (EWG) ETF, it formed a narrow opening and closing range or doji star candle in yesterday’s session, which often suggests that the current action is under consideration, and these candles sometimes form at reversal points. The news this morning from Deutsche Bank that it is reducing its workforce by 35,000 and closing its operations ten countries is not getting the attention it should on CNBC.
It is always a pleasure to work with Jim Cramer and his staff, and be featured on the “Off The Charts” segment of Mad Money.
The Russell 2000 index ($RUT) is pulling back today from a retest of resistance, action that closely resembles what we’re seeing in the Transportation average. Earlier in the week, I noted the morningstar pattern on the Russell weekly chart and suggested it was preparing to catch-up to the other major indices, all it had to do was break above resistance to set that dynamic in motion. Looking at the Russell 2000 iShares (IWM) ETF we see no attempt to traverse the resistance line, instead it reversed and is testing the support line of the narrow channel it has been trading in for about the last three weeks.
The transports are getting trounced today despite the pullback in oil prices. They have been making series of higher lows since their August low under horizontal resistance in the 8300 area. Over the last three weeks there was further consolidation in a narrow channel just above the 50 day moving average, in what looked like preparation for a break above the resistance line.
Here is a link to my article on LinkedIn published on TheStreet this morning.
Here is a link to my article on Becton Dickinson published on The Street this morning.