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Is there anybody out there...
-- Pink Floyd, "Is There Anybody Out There?" from The Wall
Markets that go straight up are easy. Markets that go straight down, while painful, can be managed. It's the back-and-forth fluctuations that drive all but the most short-term traders and long-term investors crazy. 2014, so far, has been the year of the churn. You actually have to go back to 2011 to find action in the S&P 500
(INDEXSP:.IND) that resembles anything like what the market has experienced so far this calendar year. By comparison, 2012 and 2013 were the kind of markets that caused even average investors to believe they could quit their 9-to-5s to become professional day traders as the low for each respective year actually took place in the very first trading session. 2014, on the other hand, has been a very rude awakening for many who had forgotten what an extended consolidation looks like. Over the past 14 weeks, the S&P 500 has traded in a very narrow range of around 4%, with some false breakouts and breakdowns thrown in just to further frustrate its fickle followers. One might even describe the action as boring, which is why I have had the Pink Floyd song referenced above stuck in my head recently. Is there anybody out there, and are they willing to force this market to make a definitive move?
From a technical perspective there are a few interesting chart developments to which I would like to draw attention that could provide an impetus to action here soon. First, despite all the negative attention the small caps have received lately, it is important to note that the Russell 2000
(INDEXRUSSELL:RUT) closing low from February 5 has been threatened on no fewer than eight different occasions and yet has held each time on a closing basis. Someone is obviously defending the 1,093 level heavily, and I would be a buyer here unless it falls. The overall market is challenging some big hurdles on the upside today -- the Russell 2000 overcame its 200-day moving average and the S&P 500 is looking like it will break 1,900. Both indices opened today just below these points, and it will be interesting to see in the coming days if they can maintain their rallies. Moreover, if you look to the chart of the relative strength between the S&P 500 and the Russell 2000, the large caps have vastly outperformed small caps since early March (denoted by the near vertical movement upward at the far right of the chart), but the line is at possible resistance here and is the most "overbought" it has been since early 1999. With few exceptions, a healthy stock market is led by the more speculative small caps, and it should help break us out of the mire if this proves to be an inflection point in the S&P/Russell relationship.
Monday's Memorial Day holiday, however, marks the unofficial beginning of summer here in the US, and Wall Street recognizes this day just as everyone else does. Besides the small rallies by the S&P 500 and Russell 2000, there hasn't been much action today, perhaps due to a long weekend in everyone's sights. Traders may once again be asking, "Is there anybody out there" during this session, but come Tuesday, that will hopefully change.
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No positions in stocks mentioned.
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