As the market tries to digest the surprising UK election results and Thursday’s testimony by ex FBI chief James Comey there is one market sector that is starting to emerge as a new leader. As I have noted previously several Viper ETF favorites like the Utilities Sector Select (XLU), Industrials Sector Select (XLI), Vanguard Health Care (VHT) and the Consumer Discretionary Select (XLY) have already completed their trading ranges. This I believe is another bullish sign for the overall market.
Many Wall Street pros are either not bullish on the small cap stocks or are negative. As one CNBC guest commented this week “Beware of what you're seeing with small-cap stocks… because the group is pointing to trouble ahead for the broader market”.
Two weeks ago my analysis of the weekly Russell 2000 A/D line suggested that IWM could finally break out of its trading range. New long positions were recommended to both investors and traders as the tight trading range stop made the risk/reward favorable.
In last week’s column further improvement was noted as I pointed out on Benzinga “The strong rebound in the small caps suggests they may be ready to lead on the upside but a further rally is needed to confirm.”
The iShares Russell 2000 (IWM) was up 1.3% on Thursday while the Spyder Trust (SPY) was virtually unchanged. The daily Russell A/D line has turned up from its WMA and just broken its downtrend. Though the daily A/D line is still below its previous high the more important weekly Russell 2000 A/D line may breakout to the upside this week. A strong weekly close above $142 will be bullish.
The analysis of the Russell 2000 Index (RUT) also favors the upside as it bounced from the 20 day EMA this week and triggered a daily doji buy signal (Candle Magic). The volume was strong on Thursday and the daily relative performance has completed its bottom formation by moving strongly above its WMA and its resistance. This is signaling that it is ready to lead the S&P 500 higher. The key resistance, line a, stands at 1426.70.
If the IWM and RUT do breakout to the upside this should provide some additional entry points for traders as funds start to rotate into the small caps. Investors and traders may want to consider a one month investment in the Viper ETF Report. Reports are sent out on average eight times each month and at only $34.95 per month that is less per report than your favorite Starbucks beverage.
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