There’s been a lot of talk about the Russell’s weakness in the last few weeks. Why are so many traders/investors talking about this? Well lets take a look at what it’s signaled in the past.
1st lets look at the most recent major market top from 2007. Here is a chart of the S&P 500 (SPX). It shows it topping out in October of 07.
Now lets take a look at the Russell 2000 from 07. As you can see in the chart, it actually topped out 3 months ahead of the S&P. It also tried to make new highs again in October, but failed. (Similar to what we’re seeing in today’s markets.)
Now lets go back to the major market top from 2000. As you can see in the 1st chart the S&P 500 put in a top on March 20,2000.
The next chart, again, shows the Russell 2000 topping out ahead of the S&P by a few days.
These are 2 good reasons why so many traders/investors follow the Russell 2000. It’s been a good signal of a “risk off” environment, where people sell the lower quality stocks first in favor of higher quality stocks in the S&P 500. Compare that to what we’re seeing in today’s markets and the similarities are definitely there. Thank you for reading.