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The SPDR Diamond Trust (DIA) has dropped further below its support at line b. This may have completed a rising wedge formation, which would have quite negative implications. DIA is currently down 7.8% from the September high at $136.48.
- The next support is at $124, which is the 38.2% Fibonacci retracement support level.
- Using basic Fibonacci analysis a weekly close below this level will indicate a decline to the 50% support at $120, which also corresponds to the May low.
- The weekly relative performance or RS analysis has risen for the past two week, but is still below its WMA and the downtrend, line c.
- The weekly OBV did make higher highs in September, but violated its uptrend, line d, three weeks ago. It is now further below its WMA.
- There is weekly resistance now in the $130 area and the flat 40 week MA.
The iShares Russell 2000 Index (IWM) closed decisively below its uptrend, line e, last week and is now down 11.2% from the September highs.
- It is just above the major 38.2% Fibonacci support from the October 2011 lows, which lies at $76.50 with the August low at $76.22.
- The 50% Fibonacci retracement support is at $73.40, which is just above the June low at $72.94.
- The weekly relative performance shows a pattern of lower highs, line f, and just recently turned down from its declining weighted moving average (WMA).
- The weekly OBV looks ready to close below its uptrend, line g, and is well below its declining WMA.
- There is strong weekly resistance now in the $80-$82 area.
What it Means: Before a sustainable market bottom can be on the horizon we need to see a sharp oversold rally. Based on the plunge last week a rally would have been expected by Wednesday, but instead the sharp decline means we may not see a rally until next week.
It would take a weekly close below the May lows to create a pattern of lower lows. For the SPY, this level is at $127, which is 6.5% below current levels.
Though I cannot rule out another 2-3% drop over the short term, the risk on the short side is too high now in my opinion to be buying an inverse ETF.
How to Profit: Now new recommendation