2 TRADING CHARTIST

[TREND1]

August 8th had all the elements of a key reversal day. The S&P 500 was at all-time highs in the early going, sporting a 10 point lead only to end up down six for the day.

There has been a dramatic shift in the price action of the large caps versus the small caps.

As of today’s close, the S&P 500 is 1.7% below its August 7th all-time highs,
while the Dow, which had previously set nine consecutive record highs, is 1.2% away from record high territory.
The small caps as measured by the Russell 2000 are telling a much different story. The Russell 2000 peaked on July 25th some nine trading sessions ahead of the S&P and Dow and has proceeded to lose 5.4% in the interim. It has not only taken out its 50 DMA, but is right on the verge of dropping below the 200 day line as well.

The small-caps’ recent weakness is not welcome news because they have a history of leading the market in both directions.