Despite the S&P making an all time high just a few weeks ago, the move wasn’t confirmed by the Russelll 2000 index. This was the first occurrence since this bull leg initiated in March of 2009. Not only that, but the Russell 2000 shifted into a technical downtrend. Just as the Nasdaq did. This sort of behavior is typical at major turning points as small caps tend to be more sensitive to the change in the underlying market current.
This is further confirmed by our mathematical and timing work. Again, our work shows a severe bear market between 2014-2017. When it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning exactly when the bear market will start (to the day) and its subsequent internal composition, please CLICK HERE
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Russell 2000 Spells Out A Disturbing Trend For The Market Going Forward. This Will Upset You. Google
Talking Numbers: This chart explains why we could be in trouble
This is a big warning for stocks.
About one-third of the entire Dow Jones industrial average will report their quarterly earnings this week including such important names as McDonald’s, AT&T, Boeing, Procter & Gamble, Microsoft and Visa, among others.
Of the 83 companies in the S&P 500 index that reported quarterly results as of Thursday morning, 62.7 percent have beat expectations, 14.5 percent met expectations and 22.9 percent came in below expectations.
According to CNBC contributor Gina Sanchez, founder of Chantico Global, the market can expect earnings to beat expectations because they’ve been guided lower by companies. However, investors should pay attention to the earnings numbers themselves rather than
“We’re looking at really, really, really low expectations—one of the lowest in a very long time as far as quarterly earnings go,” said Sanchez. “So, if we don’t beat these earnings numbers, it would really spell trouble. While earnings numbers probably will be bad, they’ll still look pretty relative to expectations.”
For that reason, Sanchez says investors should look deeper this quarter. “I expect we’re going to see a lot of earnings beats,” she said. “But we need to pay attention to the actual numbers rather than just the beats this time around.”
Meanwhile, Ari Wald, head of technical analysis at Oppenheimer & Co., foresees a drop in stocks based on the technicals but a long-term buying opportunity ahead nonetheless.
“I’m still playing by bull market rules so I’m a buyer before a seller,” said Wald. “Having said that, from a trading perspective there will be some better opportunities to buy stocks in the coming months. I think we’re setting up for another one of these seasonal bull market corrections.”
What has Wald concerned is that since the start of 2013, every new high in the large-cap S&P 500 was met by a new high in the small-cap Russell 2000. However, in April 2014, a new high by the S&P 500 wasn’t met by a similar new high in the Russell 2000.
“We are seeing some sluggishness in the Russell 2000,” said Wald. “Something to keep an eye out for [is if] this one-month divergence becomes a multimonth divergence. It’s much more worrisome.”
Since the Russell 2000 is just about at its 200-day moving average, according to Wald there’s one strategy for traders to take. “I’d look to lighten up on small caps and reallocate into larger-cap names,” said Wald.
To see the full discussion on the S&P 500, with Sanchez on the fundamentals and Ross on the technicals, watch the video above.