Monday, May 19, 2014

RUT Russell 2000 Small Caps Daily Chart 150-Day MA Cyclical Indicator

A key cyclical market indicator is the slope of the 150-day MA. As long as the slope of the line is up, like now, the bulls are in full control without any worries. If the 150-day line flattens, like now, then it is time for concern. If the 150-day MA rolls over to the downside the index or individual stock is in trouble and headed for multi-months of weakness. Small caps and tech have been weak lately while the broader market SPX and Dow reach new highs. Looking at the 150-day MA slopes of the COMPQ and RUT show that small caps are leading the markets lower, therefore, are the key index to monitor.

The pink box shows the 150-day MA at 1138.85. Each day forward monitor this critical moving average to see if it continues higher each day, or, if it starts to flatten and turn negative. Looking at the last few days, the 150-day MA prints are 1137.16, 1137.53, 1137.90, 1138.27, 1138.62 and Friday's 1138.85. Taking a look at the incremental daily moves are 37 cents, 37 cents, 37 cents, 35 cents and 23 cents. Note the increments are becoming tighter which means the slope is flattening which is obvious by looking at the blue line on the chart. So market bears want to see this incremental change become tighter and tighter and for the 150-day MA to turn negatively-sloped and actually start losing ground. If so, this signals a cyclical bear market for small caps here forward. For now, the cyclical bull market for small caps remains.

The downward-sloping black channel shows the path of lower lows and lower highs. The blue falling wedge is in play which would target a bottom at 1070-1080 in June. There are two gap fills needed above; one at 1120, the other 1140-1145 the same area as the 1138-1139 level, and rising, for the 150-day MA, so it is reasonable to think price will seek this area to test and close up loose ends. The bears have done a good job to take price lower off the top and not leave any gaps behind except for the two mentioned (price has no reason to ever move above 1145 again). If price rises to the 1138-1145 area, the 150-day MA will likely not turn negative for another week or so, if it does.

Note how the bears have taken price -10% lower off the top into a correction phase (at 1092-ish and lower) and price is testing the February lows. Price will likely remain active in this 1080-1150 zone for the next month. Pay attention to the slope of the 150-day MA since it tells you the cyclical direction. You can check all your current long positions with this tool. If RUT turns bearish, then the COMPQ (Nasdaq), SPX (S&P 500) and INDU (Dow) will be on watch next. Market bears got nothing until they roll the 150-day MA over to the downside which would create multi-month weakness ahead.

The RUT weekly chart indicators are weak and bleak so any bounce in the short term should give way to additional weakness and lower lows for price as the weeks play out. Price is currently testing the 50-week MA at 1099. This is the first test of the 50-week MA since November 2012 one and one-half year ago. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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