Lack of upside followthrough dulls bullish reversal

Small-cap stocks were unable to build on the amazing bullish reversal from two weeks ago and closed well below opening levels on weekly charts, suggesting that the manic rally earlier this month might have been more about squeezing out weak shorts than it was about a true impending breakout move.

Once again we find the Russell 2000 (NYSE:IWM) back in a range, and just as quickly as the market challenged move-highs last week, this time around the index is back toward the lower portion of the range. As you can see on weekly studies, the Russell is basically biding time between 690 on the downside and 750 on the upside. Until we see a decisive breakout move above that zone, there is little reason to favor the bullish side of the argument – especially after last week’s big bullish reversal apparently had no teeth.

From a pattern perspective, the dominant chart formations remain bearish in nature, especially if you are willing to ignore last week’s upside push as an anomaly. Although I prefer not to ascribe subjective interpretations to chart patterns, the extreme volatility, wacky news, and - most important – the quick failure off last week’s bullish reversal make it more difficult to embrace.

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