Don't Ignore This Chart!

Russell 2000 On Verge Of Breakdown But.....

Tom Bowley

Tom Bowley

Chief Market Strategist, EarningsBeats.com

Small cap stocks tumbled today, losing 1.23% and far exceeding losses incurred on the other major indices.  Since Monday's close, the Russell 2000 has dropped approximately 3% while the benchmark S&P 500 has retreated less than 1%.  One hallmark of a bull market is the outperformance of small cap stocks relative to the S&P 500.  It's a signal that market participants are in "risk on" mode.  The past three days that has not been the case.  It's not a sign to panic, but it is beginning to raise my eyebrows.  The following shows relative strength in the Russell 2000 throughout 2016, but a sudden reversal this month:

The action on Thursday broke both trendline support and absolute price support.  There is further price support just below 1190, which is exactly where the Russell 2000 closed today.  Tomorrow begins a very bullish historical period for U.S. stocks and, based on this chart, it's fairly important to see the Russell 2000 begin to outshine the other indices right away.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More