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Small Cap Bullish Butterfly?

We've all watching the weakness unfold in small caps and I would question whether it is truly weakness or has merely been consolidating after running too far, too quickly.  One distinct possibility is that it has now formed a bullish butterfly as shown right (click image to enlarge).

The measurements using a fat crayola are there, although butterfly patterns can extend down to a 161.8% extension so further downside would not void the possibility.  It would merely wash out all weak hands by taking out the low before reversing.

If so, here is your entry to get long with risk being very limited with a stop (alert) below the lows......along with everyone else's.

I would point out that even though everyone has wondered if small caps divergence from it's large caps brothers, there are no negative divergences really when it comes to indicators.  If it were bearish, one would expect to see bearish divergences indicating a further decline. 

We are not witnessing that in small caps.  I am all about buying at supports and limiting risk.  Lord only knows the market loves to do exactly what you don't expect.  While I am long TWM as a hedge, I cannot ignore this as a possibility for IWM to get back into the bullish longer term trend.

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Comments

  • Admin

    A possibility? Mondays low needs to hold

  • Admin

    Butterfly still a possibility and guess where small caps bounced..........off the 20m (based on low) .  Smart money would place their stop below Monday's low.

    Click image to enlarge

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