By: Elliot Turner
During the market bounce underway since the February 5th capitulatory move, the Russell 2000 has led the market higher. Since its double-top in October and September, small caps have lagged the broader markets. It took the Russell until late in December to pass its October highs, meanwhile the S&P and Dow had comfortably done so by November. Also of note is the fact that the Russell is now comfortably above its 50-day moving average, while the Dow and S&P are actively engaged in a battle to retake that pivotal level. Does this mark a major sentiment shift? Or is it merely what had been weakest providing the strongest bounce-back?
We should soon find out. If this is a sentiment shift towards small caps and a move away from risk-aversion (sorry for the redundancy in terms of “away” and “aversion,” there’s just no better way to say it), then I would like to see the Russell consolidate above that September and October double-top in order to push through it’s January 2010 52-week highs. Outperformance by the Russell has significantly bullish implications for the broader market. I will be watching this action closely. If the Russell cannot hold above that September-October level, then I will view this primarily as a bounce that should be shorted. Take a look at the chart to see a visual of the relevant levels.
