Weekly Market Commentary: Bear Flags Break

The cracks which emerged on daily timeframe charts extended into the weekly charts. Adding insult to injury was the higher volume selling which accompanied these breaks. Markets are further threatened by oversold conditions which may lead to an acceleration of the declines into crashes.

The Russell 2000 is doing the leading down and the likelihood for a test of 593 over the coming weeks looks very high.

Large Caps suffered a similar fate to Small Caps, but Large Caps have underpeformed throughout 2011. Large Caps will be the last to turn - be it higher or lower - so look elsewhere for leads. The downside target for the Dow is 9,641.

In contrast, the Nasdaq hasn't dropped out of its 'bear flag' consolidation. It also enjoys the benefit of an uptick in stochastics (momentum). While it may eventually suffer the same fate as Large and Small Caps it's likely to be the first one to recover.