What's Happening to the Russell 2000?

05/19/2014 12:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The sharp drop in the Russell 2000 from the early March highs has gotten the market's attention and MoneyShow's Jim Jubak thinks investors should still be watching this key average.

What’s going on with the Russell 2000? We’ve got the S&P 500 big-cap putting in all-time highs. We’ve got the Dow big-cap putting in all-time highs and the problem with the Russell 2000—which is a small stock, small company, small marketing cap index—is that it’s sinking. We’re looking at about an 8.5% decline on the Russell since its own March highs and it’s very unusual to have the two indexes moving in different directions. It might make people a little nervous. The problem right now, I think, is that we’re seeing a move out of the riskier small-cap stocks into safety in the big-caps and that’s why you’ve got the divergence in index and that makes this move—the divergence—pretty explicable and not really something to worry about. It obviously can’t go on for a long time. You can’t simply drive the whole market, all the big-cap stocks up, when small-cap stocks are moving down on fear, so what we want to see is, we want to see some kind of stabilization in the Russell. It’s flirting with its 200-day moving average. Flirting is okay if it breaks strongly through that. I think that becomes a problem for the market as a whole, so, basically here, look to see what’s going on with the Russell and the 200-day moving average.

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