Tuesday, September 20, 2011

Russell Divergence

We’ve been writing about the divergence between the Russell and the Nasdaq for a while now but wanted to put out a few figures out there:

The $QQQ is 2.19% over its 50SMA

The $SPY is 1.96% under its 50SMA

The $IWM is 5.96% under its 50SMA

Here’s an update of the chart we posted yesterday showing divergence between the Nasdaq and the Russell:

We have no idea what’s going on — is this some new paradigm in which small-cap stocks, financials, coals, oil stocks, and copper all sit dead in the water while momentum “decouples”? We don’t think so. One will soon revert to the other — that is either the laggards start to stabilize or the momentum stocks will start to fade. We’ve been through markets where tech/momo take the lead and commodities/more conservative sectors grundgingly follow but we can’t remember a time where copper (fresh new year lows again today) was an inverse indicator for the market.

For short-term traders it’s business as usual (we had six successful momentum daytrade alerts from our newsletter trigger in last two days) but it has been keeping us even more short-term than usual, constantly worrying about sudden reversals and death traps.