This Bull Needs Some Help

10/01/2014 1:30 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Given the persistent drop in the Russell 2000 index and the fact that the S&P 500 dropped for three straight days before today, MoneyShow’s Jim Jubak thinks that—although the resilience of the US stock market has been amazing—the trend could still use some help.

The Russell 2000 index of small-cap stocks is down another 0.41% and 4.5 points as of noon today in New York putting the index on the verge of a 10% retreat from its all time closing high on March 4. At the noon quote of 1096.65, the Russell 2000 was 9.63% below the 1213.55 the index hit back in March.

Now, there’s no guarantee that the rest of the market has to follow the Russell 2000 if that index moves into a correction. But, at the least, the persistent drop in the Russell 2000 marks the kind of narrowing of a market rally that often precedes the end of a rally. The Standard & Poor’s 500 (SPX) is still in bull mode, but too much of that upward trend, in my opinion, is now based on a flight to safety as global markets confront worries that include Russia/Ukraine, Iraq/Syria, and Hong Kong/China as well as continuing weak growth in the EuroZone and Japan.

The S&P 500 has dropped for three straight days before today (setting up another chance for the kind of four-in-a-row down streak that the market hasn’t seen in 2014) and is down 2.6% since closing at a record on September 18.

These dynamics make tomorrow’s meeting of the European Central Bank and Friday’s release of US jobs numbers for September extremely important. Will the ECB’s Mario Draghi announce a program of asset purchases—or at least the planning for such a program—that will restore belief that EuroZone economies might show some growth? (Confidence in EuroZone growth prospects took another hit today as Italy cut its economic forecast.) Will US jobs numbers support a view that the US growth might be strong enough to pull the rest of the world through the current slump?

The resilience of the US stock market has been amazing but the trend could use some help.

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