Daily Market Brief

Russell 2000: The Oncoming Train?

ComplacentSpeaking against the grain is never very popular, but I can’t help having a passion for unbiased analysis. No doubt this bull market keeps humming along on auto pilot. Since April 14 there hasn’t been any serious downside action and the $SPX is on week 8 without a down week. Yet while everything is bought in sight every day I’ve outlined some technical caution signs in my weekend charts and with yesterday’s hanging man.

In my view the big elephant in the room remains the Russell 2000. Its monthly chart continues to scream sell in similar fashion to the last large pullback markets have seen back in 2011:

RUT monthly

Note the timing of the sell structure is eerily similar to now. In the 2011 case the proximate cause was the end of one of the Fed’s QE programs. The Fed has since learned its lesson knowing that markets simply cannot function without its constant intervention. What a sad statement about capitalism that the crutch needs to be extended still. While the Fed is now in a tapering process and is slowly reducing the drug of asset purchases it remains firmly entrenched in the market’s affairs. Super Mario is up this week and we shall see how he will appease the QE hungry market beasts.

Yet the chart is clear: We are witnessing a crossing over (monthly MACD) of a multi year trend that reached a historic extension to the upside. In 2011 the corrective move went close to the bottom Bollinger band. As the $SPX will celebrate a new record of sending the most time above its 200MA how much longer are people wiling to bet on a historic disconnect to continue indefinitely?

Just because the track seems clear does not mean a train is not coming. And if the $RUT is the train that is coming its destination seems a far lower elevation than where it is now.

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