The Russell 2000 (RUT) appears to be heading lower following the break of its Head & Shoulders neckline on Monday.
Is small cap leading the way down?
At market tops, there is a high chance to see several major indices failing to confirm each other (inter-market bearish divergence) just like now as well as in 2000 and 2007.
Here right now, we have the Nasdaq hitting a new high in July while the RUT ‘peaked’ in June while Dow and the S&P500 had their highs in May.
Could this be the start of the next bear market?
The intermarket bearish divergence among the major indices is a warning and the weak upward momentum lately calls for a correction in the US markets. Here, our focus in on the RUT, where the break of its H&S neckline suggests that a possible top may be in place.
If the bearish wedge pattern on the left chart is right, then prices could easily fall back to retest the October 2014 low of 1,040 in the weeks to come. The H&S has a measurement target of 1,160.
There is a need to take extra caution here if you are a bull. (Read Report)
Source : CIMB Research