Consolidation process still in play; waiting for a breakout move
Small-cap stocks remain in a sideways consolidation mode, on the road to meekly finishing out a historic year in an ironically tame fashion. This week saw the tightest range in the Russell 2000 (NYSE:IWM) since before the whole collapse kicked into gear back in mid-September. As with most things in life, there are two ways to look at the recent light volume, tight range action.
One way to interpret the suddenly mundane movement is that the market is simply taking a “breather” to work off long-term oversold conditions within the dramatic bear market pattern. The longer that the market trades sideways without punching through key resistance points, then the more ominous become the odds for a retest of the November bear market lows. Strictly speaking, the odds favor this interpretation. We are in a bear market. We lack a decisive reversal pattern, and the market has repeatedly failed to take out our resistance line at 491 with conviction. A push through 491 on a daily closing basis (weekly would be even better) or below 416 would be the kind of move needed to suggest that a dynamic breakout is at hand.
Now, even though the odds might favor a bearish resolution of the recent consolidation, I hold a slight preference for an upside breakout, but if the market doesn’t get something rolling soon then that indecisive tone will cloud any immediate bullish projections.
Why do I tilt slightly against the dominant chart structure at this stage? Because I like some of the little changes in behavior the market has generated in recent weeks. During the calamitous collapse from mid-September through Nov. 21, the market had a nasty repeating process of vicious freefalls, followed by short-lived failed corrections. The end result was a string of lower lows and lower highs that is typical of bear market cycle behavior. And even though we failed (three times, no less) to swat away that pattern via a hard breach of 491, the market hasn’t rolled over into a dynamic meltdown either. This week we saw an inside session range on . . .
One way to interpret the suddenly mundane movement is that the market is simply taking a “breather” to work off long-term oversold conditions within the dramatic bear market pattern. The longer that the market trades sideways without punching through key resistance points, then the more ominous become the odds for a retest of the November bear market lows. Strictly speaking, the odds favor this interpretation. We are in a bear market. We lack a decisive reversal pattern, and the market has repeatedly failed to take out our resistance line at 491 with conviction. A push through 491 on a daily closing basis (weekly would be even better) or below 416 would be the kind of move needed to suggest that a dynamic breakout is at hand.
Now, even though the odds might favor a bearish resolution of the recent consolidation, I hold a slight preference for an upside breakout, but if the market doesn’t get something rolling soon then that indecisive tone will cloud any immediate bullish projections.
Why do I tilt slightly against the dominant chart structure at this stage? Because I like some of the little changes in behavior the market has generated in recent weeks. During the calamitous collapse from mid-September through Nov. 21, the market had a nasty repeating process of vicious freefalls, followed by short-lived failed corrections. The end result was a string of lower lows and lower highs that is typical of bear market cycle behavior. And even though we failed (three times, no less) to swat away that pattern via a hard breach of 491, the market hasn’t rolled over into a dynamic meltdown either. This week we saw an inside session range on . . .
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