Are we Headed for a RUT – The Russell?

By aaron on November 5, 2013 in derivatives

After 8 positive weeks that has lifted futures to record highs last week the Russell did have a negative week closing lower by just better than 2% failing to hold onto its gains. A rejection of the highs and lower trade could be a tell of what’s to come? It is too premature to call an interim top and pile into bearish trade but perhaps a hedge to protect from downside for those carrying large open profits in your stock portfolios. Which based on the recent performance should be most equity types that are reading this. Please do not confuse a bull market that has gone virtually straight up for your advisor being smart. We all have seen this movie and know how it ends. The longer the stock market moves higher with no correction even if it is just on profit taking the uglier conclusion…in my opinion.

The Russell may not be as mainstream as the Dow or S&P so a a brief history lesson.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 2000 Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

Russell Global Sectors

Top five by weight:

Financial Services
Technology
Consumer Discretionary
Producer Durables
Health Care

Russell Daily:

Russell 2000 Index

Russell Weekly:

Russell 2000 Index (weekly chart)

What if a correction is in order? As seen on the first chart a trade back to the two red horizontal lines would do no longer term chart damage and only represent a correction of 3% and 5.5% respectively. My real concern is investor complacency as many are asleep at the wheel and think the current path and pace is indefinite. I am not saying crash and burn but a correction may be in order.

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As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: mbradbard@rcmam.com or 312-870-1653

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