Russell 2000: Bulls rule

The bulls delivered a body blow last week to short sellers in small cap stocks, negating potential topping signs on short-term charts while sending the Russell 2000 Index to historic intraday and closing highs.

This message bears repeating: the long-term trend in small caps is bullish, and even though this bull run is long in the tooth, there are no convincing chart signals yet to suggest that a top is in place.

Heading into last week’s action, there were some troubling patterns on short-term charts, which made action into – and after – the big June 1 employment report all the more important. So, just how did the market respond? How about four consecutive sessions in which the Russell 2000 closed above opening levels! Counting the previous Friday’s close, that marked five consecutive days in which any opening sellers were squashed without any real intraday reprieve. Even in runaway bull market moves, it is rare for the market to reel in five consecutive days above the opening. What’s more, the market notched a new daily and weekly closing high after Friday’s big employment release, which provides nice validation for the upward push.

Moving into this week’s trading, it should be noted that certain short-term momentum readings are fast approaching overbought levels, which could stall upward climbing. However, these readings can remain overbought for some time without generating a pullback, so it’s important to watch for a so-called bearish cross on the readings before anticipating a correction.

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