The Bigger they Surge, the Harder they Correct


The S&P 500 SPDR (SPY) and the Russell 2000 iShares (IWM) both broke below their September lows with IWM leading the way lower. QQQ is still holding up the best because it hit a 52-week high the week before and remains above the September low. Looking at SPY first, the ETF fell around 5% from high to low over the last eleven weeks. This modest decline comes after a 22% advance from the February lows and a 10% advance from the late June low. Even though the inability to hold the breakout is negative, I still view this as a correction within a bigger uptrend. The blue trend lines mark a possible falling channel to define this correction and I am marking resistance at 215.50. 

The bottom window shows IWM advancing around 35% from the February low and 17% from the June low. The ETF then fell around 9% over the last six weeks. IWM is down the most of the big three, but it was also up the most from its February low. The bigger they surge, the harder they correct. It is possible that a falling wedge is taking shape on the price chart. Chartists can watch the upper trend line for the first sign that this correction is ending. A weekly close above 122 would break this trend line. 

Thanks for tuning in and have a good weekend!
--Arthur Hill CMT

Plan your Trade and Trade your Plan 

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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