The Russell 2000 index, which some are calling an early indicator for the overall large cap markets, has continued to decline for the last couple of months. We’ve dissected the movement, and wanted to update our readers on where the index could be heading from here. Even more importantly for us, when the Russell 2000 is correcting, most small-caps are correcting, which makes it even more difficult to find good picks and trading ideas. The Russell 2000 did try to hold the 1,100 level, but broke below it this week. Right now, it is flirting with the last static support level of 1,082 to be specific.
If this support level is unable to hold, look for further declines until it reaches the 1,050 level. As evident by the chart on the left, the 1,050 level is really important to hold, as it marks the five-plus-year trend since the financial crisis lows of 2009. A breach of this last support level will mark a major shift in sentiment, and could make room for more downside risk. Now we are not trying to stir fear, what we are simply showing are the levels to watch out for, and rest assured that we are following them closely and will update Pro members on future developments.
Overall, the small-cap and large-cap markets still are in up trends, the U.S. economy is still humming along at a decent clip and Companies are continuing to put out decent earnings, so outside of simple over valuation, there doesn’t appear to be any major catalyst for any major stock market decline. With high flying tech companies and small caps already declining quite a bit, this healthy correction among these best performing groups may turn into a buying opportunity shortly.
