US equities came under heavy pressure this week after the small-cap Russell 2000 posted yet another all-time high last week. There are more than a few signs that all is not well for equities, however, the situation is not yet dire:
The recent uptrend in iShares Russell 2000 Index(ARCA:IWM) is currently being tested and there is a very important area of confluence just below the 120.00-121.00 area:
In addition, the daily RSI(14) just moved below the median line (an area at which it recently found support).
Also notice that the daily RSI(14) did not even reach ‘overbought’ territory above 70 at the recent all-time highs nor has the money-flow index (MFI-14) reached overbought levels since the October-November rally. That's an indication of a weak rally with relatively narrow participation -- the sort of move that can be quickly reversed.
We are in a seasonally soft period for the next couple of weeks before small caps move into one of the most bullish periods of the calendar year:
Meanwhile, the (ARCA:SPY) has formed a double top with the same momentum and volume divergences as we saw in the Russell 2000:
The all-time high of 2119.59 posted in the S&P 500 during February was made on extraordinarily light volume. A test down to the 200 area on SPY (roughly 2000 on the SPX), which coincides with the rising 200-day simple moving average, seems quite likely in the coming days. With month end/quarterly rebalancing set to unfold Monday and Tuesday -- in addition to the aforementioned technical dynamic -- next week is shaping up to be a crucial one.
Via Energy and Gold.com