often get the question "What's your favorite index to follow?" While it's a must
to follow the S&P and Nasdaq indexes, one of my favorite indexes to follow to get a
good read on what the majority of stocks are doing is the Russell 2000 ($RUT -
407.68). Long-time readers will recall that I like to see the Nasdaq Composite
outperforming the S&P 500 and Dow Industrials, as the Nasdaq tends to lead the way,
up and down. In addition, we discussed the confirmation that can come from the Dow
Transportation Index ($TRAN). But another measure of the market leadership comes in
tracking the relative performance of the Russell 2000 versus the S&P 500 as well. As
you can see from the chart below, the $RUT earlier this week challenged its November
2002 high, while the S&P 500 and Dow have not yet returned to those levels just yet.
The Russell 2000 was created by the Frank Russell Company as a tool to measure the
performance of the small capitalization stocks. Notice how the $RUT broke above its
upper 20-day Acceleration Band in the daily chart back on April 22, which has been
one clear sign of the short-term strength of the markets. Certainly I remain
skeptical that this rally can have much more upside in the intermediate terms, as the
Stochastics indicator is heavily overbought (though as a caveat, the better shorting
opportunity will come with a lower close once we see the 21-day Stochastics line (in
red on the upper half of the chart) back under 80. The weekly $RUT chart is right at
the top of its upper 20-week Acceleration Band, suggesting resistance up near this
upper end of the trading range that held around 400 twice last year. A close under
400 would be a sign of further weakness, while a hold above 400 could suggest
continuing short-term strength.
One of the greatest benefits in following the $RUT is that this small-cap index tends
to trend up and down with greater persistence and less noise than its larger-cap
counterparts. As any trend follower knows, the less noise the clearer the trend can
be ascertained. As a result, the $RUT makes a nice addition for confirmation
regarding the participation of a large number of stocks during a market move.
Russell 2000 Index ($RUT) with 21-Day Stochastics
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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