by Bespoke Investment Group
The small cap Russell 2000 index finds itself at a critical juncture to start off the week. As shown in the chart below, the index is currently sitting just above its 50-day moving average (DMA). Whether or not the index can hold this level will help to dictate short term sentiment towards the smallcaps in the days ahead.
Adding to the importance of the 50-DMA is the fact that breadth in small caps has been weak. While the Russell 2000 index made a higher high in the most recent rally, its underlying breadth lagged and failed to make a higher high. As long as the index holds above the 50-DMA, you won't hear many people grumbling about the negative divergence in breadth. If the Russell does not hold the 50-DMA, however, you can expect to see a lot more people turn negative on small cap stocks.
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