An Indicator That Could Be Telling Us Something
Another week, and more mush in the stock market. All I see is constant ups and downs, accompanied by predictable commentary: bulls latch onto the ups and expect a breakout, with the downs dismissed as temporary adjustments; the bears pile on the declines waiting to ride the market down, ignoring the ups. At the end of the this back and forth, we've gotten nowhere.
Meanwhile, if you bother to read the daily stories on financial websites, you can't help but notice that the economy is either strengthening or weakening, depending on the day. Literally, day after day, the pendulum swings this way, then that. Europe's the most recent best example, as I've read over the last several weeks how Europe's picking up strength: buy European stocks; then Europe's faltering; forget European stocks.
I've pretty much curtailed my usual reading, simply because it's driving me bonkers and I've got better things to do with my time.
On the other hand, the chart of the Russell 2000 - small stocks - might be saying something worth listening to. It is said that when small stocks turn down, money flees and flows to the large caps, which may explain the strength we've seen in this over-valued stock market. So watching IWM - an ETF that tracks the Russell 2000, we're seeing a relentless drop, first below the 50-day moving average, recently below the 200-day moving average. The action at the 200-day is particularly interesting (see the red line), as you see the struggle first below, then above, then below, most recently (yesterday) a hair above. But note how volume (those gray and red vertical bars at the bottom of the chart) is weak when the IWM forges upward (gray bars), and how the declines see volume spike (red bars). The real action - i.e., the higher volume - occurs when the IWM falls. And that could be tipping us off that the action around the 200 will resolve itself in a downward trend, confirming a flight from small stocks.
And if the theory holds true, at some point, the big boys will figure a way to lure the small investor as the stock market presses upward, which allows the big boys to sell to that small retail investor, just in time for the stock market to plunge into some sort of general correction.
Anyway, that's my attempt to focus on something that's not wishy-washy mush day after day, bouncing around, really going nowhere, precipitating endless comments about how and why stocks are up today, down tomorrow, and why our economy is finally strengthening - or, er, not.
You can find a chart of IWM at:
http://stockcharts.com/h-sc/ui?s=iwm
Meanwhile, if you bother to read the daily stories on financial websites, you can't help but notice that the economy is either strengthening or weakening, depending on the day. Literally, day after day, the pendulum swings this way, then that. Europe's the most recent best example, as I've read over the last several weeks how Europe's picking up strength: buy European stocks; then Europe's faltering; forget European stocks.
I've pretty much curtailed my usual reading, simply because it's driving me bonkers and I've got better things to do with my time.
On the other hand, the chart of the Russell 2000 - small stocks - might be saying something worth listening to. It is said that when small stocks turn down, money flees and flows to the large caps, which may explain the strength we've seen in this over-valued stock market. So watching IWM - an ETF that tracks the Russell 2000, we're seeing a relentless drop, first below the 50-day moving average, recently below the 200-day moving average. The action at the 200-day is particularly interesting (see the red line), as you see the struggle first below, then above, then below, most recently (yesterday) a hair above. But note how volume (those gray and red vertical bars at the bottom of the chart) is weak when the IWM forges upward (gray bars), and how the declines see volume spike (red bars). The real action - i.e., the higher volume - occurs when the IWM falls. And that could be tipping us off that the action around the 200 will resolve itself in a downward trend, confirming a flight from small stocks.
And if the theory holds true, at some point, the big boys will figure a way to lure the small investor as the stock market presses upward, which allows the big boys to sell to that small retail investor, just in time for the stock market to plunge into some sort of general correction.
Anyway, that's my attempt to focus on something that's not wishy-washy mush day after day, bouncing around, really going nowhere, precipitating endless comments about how and why stocks are up today, down tomorrow, and why our economy is finally strengthening - or, er, not.
You can find a chart of IWM at:
http://stockcharts.com/h-sc/ui?s=iwm
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