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Aggressive Small Cap Indices Break Out Again

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Both the Russell 2000 Index ($RUT) and S&P 600 Small Cap Index (SML) broke out to all-time highs last week as money continued to rotate towards aggressive small cap stocks and that should be seen as a bullish sign for equities.  In the case of the $RUT, a year long bullish continuation pattern - an inverse head & shoulders - finally resolved to the upside with a fresh target price of 1400 based on its measurement.  Heading into 2014, momentum began to slow for small cap stocks as a long-term negative divergence emerged in March 2014 on the weekly chart.  Many times that sets the stage for a selloff, or at least a long period of consolidation.  Consolidate is exactly what the Russell 2000 did.  Check out the chart:

While the S&P 500 was up nicely last week, it's still awaiting its next breakout.  Failure to break out, however, did not stop the S&P 600 Small Cap Index ($SML) from breaking out as the pattern here is quite similar to the Russell 2000 with the small cap area of the S&P surging to all-time highs.  Take a look at the SML:

Given the strength in small caps, it's very difficult to grow bearish equities at this time.

Happy trading!

Tom

 

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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