Monday gave us a bearish outside reversal in the senior averages – S&P 500 futures, S&P cash index, the S&P 500 ETF (NYSE:SPY), etc., but prior to that, at the middle and end of the last week of November, we had an outside bullish reversal. All that’s really happened between having an outside bullish key reversal and an outside bearish key reversal is keeping us in the same range for the past two trading weeks, with the exception of a little dip above SPY support of 140 but below SPY resistance at 143.
Right now, I can’t make a technical case in the short term that this range is actually going to be broken until it actually breaks.
But taking a look at the SPY, which I currently recommend a short position in, you can see that it absolutely did do a back test. You can see the broken uptrend line and the bearish rising wedge breakdown. It bounced where it was supposed to bounce. It rallied up to where it was supposed to rally. But something about it still doesn’t seem complete, and that likely has to do with what has happened within the Russell 2000 ETF (NYSE:IWM).
Even though we have indicators and oscillators in the SPY, which I show you in the video, that tell us, yes, it moved to the overbought area short term, that, in and of itself, doesn’t mean that we’re going to get a whole lot of movement just yet.
But looking at the IWM it was like, “Phew, the back test is complete.” And, yes, the back test in the IWM absolutely is complete but as to when this back test is actually done and we either get the next leg down [or the next leg up] is uncertain.
In my opinion, the IWM overshot a little bit to the downside and now we’re just working off that excessive pessimism in the short term by rallying up to test all of the weekly broken uptrend lines. Now, if we look at the weekly chart of the IWM, it shows a big, bearish rising wedge breakdown that started all the way back in 2011. You can see that it did a perfect back test the last week of November and again this week.
As to how long it will ride the back test and ride the broken uptrend line, it’s almost impossible to tell. It could be one day, two days, three days, four days, or five days – you really don’t know.
So, for that reason, long story short, everything that I expect, I still expect. It’s just that for anyone expecting anything significant in the short term – meaning during the next couple of trading days – you might be a little bit disappointed because I don’t see any signs of anything significantly happening short term in the major averages.