12Feb10:34 amEST

A Different View of a Popular Destination

More than anything else, the supposed new era of markets where computers front-run the "old ways" of traders doing things has ingrained a certain behavior into market players which sees them assuming that any slight undercut of a well-defined, prior support area must be a great buying opportunity.

This idea fits neatly alongside the notion of essentially buying any dip, whatsoever. And just like in most cycles throughout market history (including short-selling volatility into any market dip, and the fallout we saw from that last week), it works great until, suddenly it does not. When the cycle ends, we see the over-levered and hyper-aggressive traders quickly disposed of by Mr. Market. 

In the current market, the weekly chart for the IWM, ETF for the high beta, growth small caps in the Russell 2000 Index, marginally undercut the well-defined two-year weekly support trendline seen on the weekly timeframe, below. 

That light blue line has acted wonderfully, in terms of buyers stepping in to put a floor underneath this market since the beginning of 2016. But "support" should never be complacently assumed beforehand, until we see at least some actual signs of buyers presenting themselves in a meaningful way.

Here, buyers did indeed step in last Friday. However, if the small caps fail to hold most of those gains from Friday's reversal and slip back under $145, I suspect we can quickly see a change in character which would catch most off-guard. 

On that note, consider two "tells" we fleshed out for Members of late: The VIX and the Japanese Yen. 

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