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Russell 2000 Stays Down for the Day and Year as Majors Gain

NEW YORK (TheStreet) -- The stock indexes finished mixed on Friday as the DJIA was up 28.74 points to close at 16943.81 and the S&P 500 was up 2.89 at 1967.57. The Nasdaq was higher by 19.28 at 4415.49. The Russell 2000, however, closed down on the day by 1.93 and finished at 1159.93.

For the year, the DJIA is up 2.2% while the S&P 500 is up 6.45%. The Nasdaq is up 5.7% YTD. The Russell 2000, however is down .31%.

So, for all the traders out there who are bullish and excited about the stock market in 2014, I caution you to take a step back and understand what is happening under the surface of this stock market.

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"The equity market remains

The Russell 2000 are the small-cap growth stocks. They are usually the leaders in an overall bullish stock market. The fact that those stocks are underperforming and negative for 2014 should be viewed as a negative.

I continue to be of the opinion that this stock market is not what it appears to be. There are too many negative divergences that should have traders and investors take a step back and be careful.

The leading sectors in this stock market continue to be the growth slowing sectors and the inflation accelerating sectors. The Select Sector Utilities ETF (XLU) is up 13% YTD, while the SPDR Gold Trust (GLD) is up 11% YTD. Even though the S&P Goldman Sachs Crude Oil Trust ETN (OIL) has corrected, it is still up 5.4% YTD. The Barclays 7-10 Year Treasury Bond Fund (IEF) is up 4.3% YTD.

As we enter the second-quarter earnings season, which starts in earnest next week, the indexes are sufficiently oversold to have a stock market rebound. The Russell 2000 is especially oversold. We should see some nice upside in next week's trading.

What will be crucial to see is if the indexes will be able to take out their all-time highs in the DJIA and the S&P 500. If not, the question becomes, are we going to see lower highs, which could lead to a more serious market correction?

The Russell 2000 is back into Trend Bearish territory after its most recent correction. That is a time frame of 3 months or longer. It is the only stock index in Trend Bearish territory.

Thus, we continue to trade opportunistically. I am now finding many stocks, both small and large, that are oversold. The energy sector should be the next sector to see buying rotation as the sector is extremely oversold. Again, you can trade with me and receive my market insight at Strategic Stock Trade.

On Friday, I sold my MBIA (MBI) long position from Thursday for a better than 1% gain in early trading and started a long position in Restoration Hardware (RH) when it became extremely oversold. I flipped that trade for a better than 1% gain at the close. I added to my ConocoPhilips (COP) and WhiteWave Foods (WWAV) on an extremely oversold signal.


At the time of publication the author was long OIL, COP and WWAV.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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