Looking Over the Ledge … For a Clue

Looking Over the Ledge … For a Clue

December 11, 2018 Off By Chuck

Keeping with being their role as a canary in the proverbial coal mine, US small cap stocks continue to lead the broader market both into and out of corrections. This includes the most recent correction that started in the August-September timeframe. As you can see in their weekly chart below, the price of the small cap stock index, IWM, sits right on critical support. A breakdown below the $142-$143 level suggests another 17% decline is in the cards based upon a confirmed head and shoulders pattern target, T1.

One other outcome is that the current level will actually hold support here and move higher on to new highs and we remain in a bull market uptrend.

Between the above two possible outcomes, I do think we will see lower prices in our short to intermediate term future (new lows). There is a version of the breakdown that I am actually favoring at this time. The right shoulder of the pattern is unsymmetrical and a bit malformed (stunted in its time of development) as compared to the left. This can occur in strong downward trending markets but it is not a ideal. As such, I could see the market chop around here a bit more before it resumes its move lower. This would allow the right shoulder to further develop before the breakdown and flush lower occurs. Either way this goes, it is currently at an interesting level and one that shouold interest both bulls and bears alike.