Russell 2000 Divergence Could Signal Impending Bear Market

The Russell 2000 index has diverged from the S&P 500, failing to make new highs recently while the S&P 500 did. This kind of divergence often signals an impending bear market.

The Russell 2000 is testing support around the 160 level. A break below here would likely confirm a new bear market leg down.

If the Russell 2000 breaks support, the author's target is around 140, which would represent a 30% decline from recent highs.

The S&P 500 could also break down to retest last year's lows if the Russell 2000 rolls over, representing a 25% decline.

This thesis will be wrong if the Russell 2000 holds support and breaks out above its recent trading range instead of breaking down.