On November 6 we pointed out that a comparison of SPY and IWM showed a deterioration in the Russell 2000 small-cap ETF relative to the big-cap SPY.
We said that as long as IWM was trading below its 20-day MA at 149.11 we would view it as vulnerable to downside continuation off of its October 9 all-time high at 150.58.
We were watching this SPY-IWM relationship as, historically in the later stages of a bull market, a divergence is very likely. In other words, as a bull market loses steam, small companies lose upside momentum relative to the 'go-to' mega-capitalized companies.
Whether or not that's the case now, rather than merely a temporary rotation out of IWM in favor of SPY, is anyone's guess in this market, but since then IWM has continued lower, as has SPY.
In fact, the IWM has reached the reaction-low we called for in on Nov 8 – 145.00-147.70.
Right now, all eyes are on IWM and the juxtaposition with its sharply declining 5-day MA – now at 146.41 – which has served as a tight-fitting, down-sloping resistance line. As long as IWM is trading beneath its 20-day MA, consider the dominant near-term downtrend as intact and the dominant near-term influence on price action as a negative sign for the SPY and S&P 500 bulls.