So far, the Russell 2000 has not been able to break above its 50‐day exponential moving average (1,161) as well as trendline resistance off the peaks since mid‐July. The one big potential positive for the Russell 2000 is that there were some impressive daily market divergences at the price lows a few weeks ago (this was very bullish as momentum held up while price made new lows). See Russell 2000 chart below.
The NASDAQ 100 ETF (QQQ) is only a point below its September peak and has risen above the declining 50‐day moving average and is right at its flat 200‐day moving average. Of all the indices, there is much less overhead on the QQQ’s, as its top was not as well developed. The QQQ has moved into overhead supply (i.e. price resistance), which runs up to the July peak of 114.
In Summary
Overall, the stock market indices are showing a bifurcated market once again, and it could be very telling how each index deals with key overhead supply that remains a ceiling on stocks. For this rally to have legs, and to prolong the bull market, I would prefer to see some better price action by the higher beta, small to mid cap stocks.
Looking at market sentiment, which plummeted to panic levels in late August, and which remained there for about a month, is now unwinding quite rapidly. Looking at the demarcation between smart money and dumb money, courtesy of SentimenTrader, there has been a rapid decline in confidence by smart money investors and a rapid increase in confidence by dumb money participants. Another few days to a week of stock market strength may push near-term sentiment to levels that indicate that the current rally is nearing an end.
In conclusion, it looks as though the bulls are back in control of the near-to intermediate term, but major overhead supply remains on top of prices.
If any of you have an interest in my premium newsletter, please contact me at arbetermark@gmail.com.
Thanks for reading and good luck out there.
Twitter: @MarkArbeter
The author does not have a position in any mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
