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Russell 2000 Small Cap Index and the Dow Transports Fall to 52-Week Lows

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Editor's Note: This article was originally published in John Murphy's Market Message on Friday, December 14th at 2:32pm ET.


Two of the earliest warning signs since October that the stock market was in trouble was the fact that economically-sensitive stock groups like small caps and transports were leading the market lower. And they're doing that again today. Chart 4 shows the Russell 2000 Small Cap Index undercutting its February intra-day low today to put it at a new 52-week low. Chart 5 shows the Dow Transports doing the same. Weakness in those two groups is a negative warning sign for the market and the U.S. economy. So is the drop in our last chart. Chart 6 shows the S&P Retail SPDR (XRT) also falling to a new 52-week low. And that's happening during the Christmas shopping season which is supposed to be the best time of the year for retailers. It seems clear from the heavy selling in those three groups, and the rest of the market, that investors are bracing for bad economic news in the new year. And they're not waiting around to hear that news. That's why stocks usually peak before the economy. And why we can't use old economic data to predict the direction of the economy or the stock market.

Chart 4

Chart 5

Chart 6

John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor. Learn More
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