In the Evergrande Scheme of Things

With tons of off-the-cuff Evergrande analysis out there for you to enjoy right about now, the last thing you need from me is another China macro tourist opinion. 

On that note, I find it fascinating that so few people are even mentioning (even if to then quickly dismiss) the potentially massive head and shoulders top on the small cap-dominated IWM (ETF for the Russell 2000 Index). The IWM weekly chart, updated below, illustrates this potential pattern, triggering with a weekly close below $208. With swirling global headlines, it is often easy to overlook major technical clues staring you in the face at times. 

For starters, the pattern has not yet confirmed. So, why even bother noting it, especially given the unique resilience of this bull market since March 2020 if not March 2009?

That is a valid question, to be sure.

But as one of our Members astutely noted this morning, when it coming to massive, multi-quarter patterns like these, it all looks so obvious in hindsight when they do, actually, trigger and lead to a massive directional break. And the fact that so few people are even discussing it leads me to take it all the more seriously. As I noted in my Weekend Video (free to everyone this week, just scroll back to the previous post), Paul Tudor Jones has a famous saying about respective well-defined range breakouts in the direction of the break. 

We will get a breakout on IWM in due time. And when we do, history and psychology implies many will doubt it initially to a great degree. 

Elsewhere, I will add one tidbit to the Evergrande unwind, names like BABA BIDU WB tend to become "sources of liquidity" in these situations, which means market players may very well sell those names, unfairly or not, to find margin calls elsewhere.