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Q&A: Is the Russell 2000 Overbought?
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.
Continue Reading -->Resistance and Support Ahead of Trump’s Big Speech
The Russell 2000 is popping 0.6% today while the major averages are only barely green. On Friday, it nearly tested that descending trendline from which the recent little rally erupted. Has resistance become support? I assume if the Russell can hold this 1380-1400 range, I assume the bears don’t stand much chance of finally breaking the bull. Looking ahead, the next major potential catalyst is President Trump’s address of Congress tomorrow. The big question is how much will he detail will he offer? Trump won the election on sweeping generalities, but there’s a lot of demand on him to get down to brass tacks. Since Trump is a typical CEO (long on broad visions, short on the details that get left to underlings), expectations are extraordinarily low in this regard. However, I would not be so quick to count him out completely. From about August 2016 until the election in November 2017, Trump cut through the competition like a hot chainsaw through butter. He was the hammer for a while… and now he’s the nail. For the past month or so, he’s been hammered relentlessly and is in need of a win. The bar is low. And perhaps by offering even minimal ‘real’ information on tax reform, infrastructure spending, and health care, markets may respond very favorably. Why? Because they’re not expecting much. It’s the equivalent of a company heading into earnings after getting a bunch of downgrades and estimate cuts — it doesn’t take much positive news to start a countertrend rally. There’s also the possibility that Trump offers significant details to confound his critics. And if indeed Trump does deliver, the Russell may really rip.
Continue Reading -->Russell 2000 Hits Record Highs, May Be Ready for a Breakout
The Russell 2000 just made a new all-time high, matching last week’s records in the SPX, Dow, and Nasdaq. In doing so, it is above this little 1385-1390 range at which it failed 3 times in a row: We can also view those 3 failures as top points of a descending trendline: I’d keep an eye on it to see if it can keep moving with authority above 1400. Round numbers are meaningless for judging direction but 1400 is just enough above the recent range to judge this extension Yellen’s testimony may be key tomorrow. If she’s hawkish, that could help the Russell bust a power move higher since a strong dollar is generally better for small caps than large caps.
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