Q&A: Is the Russell 2000 Overbought?

March 3, 2017
/ By Michael Comeau

Hi Mike,

I’m a subscriber and I mostly follow Scott Redler’s Daily Recaps.

I just noticed that wrote about sentiment.

Anyway, I only trade TNA and TZA (3X Russell 2000 ETF's).

Don’t you think it’s way overbought?

-Rolando

The Russell 2000 has come 21% since its pre-election lows, so under the most basic rule of the market — what goes up must come down, eventually — it may be overbought.

But let's take a look at a chart of the Russell 2000 ETF (IWM).

The Russell is pretty far above its 200 day moving average.

However, prior to the last pop off the February lows, the Russell spent 2 months doing nothing.

And now, IWM basically riding the 8 & 21 day moving averages and building a new trading range between $138 and $141.

So from a big-picture perspective, the Russell may look a bit overbought — but that may not mean that it's going to drop.

It could very well drop into another low-volatility range which will allow it to work off the overbought condition.

I'd watch to see if IWM tests the 50 day moving average, and how it behaves from there.

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Q&A: Is the Russell 2000 Overbought?

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