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Small Caps Are Stuck in an Unstable Equilibrium

Russell 2000 index unlikely to remain in its current range for much longer.
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The Russell 2000 is a small-cap stock market index. That means it tracks the performance of companies with lower overall value (and typically lower stock prices) than more attention-grabbing indices like the S&P 500 or the Dow Jones Index.

In doing this, the Russell 2000 provides an essential look at the market. The stock market, after all, is far more diverse than the relative handful of its largest companies. There’s a lot more value (and a lot more opportunity) out there than just the FAANGs, even if those big names tend to capture most of the attention day-to-day.

So we should make sure to keep an eye on the Russell 2000 for market insights and opportunities. And right now, the Action Alerts Plus team sees the Russell 2000 in an odd point of equilibrium. “Some years back there was a band named Stealers Wheel that recorded a song called ‘Stuck in the Middle With You.’ This is how [we] would describe the Russell 2000 ETF  (IWM) - Get iShares Russell 2000 ETF Report chart right here."

The index "is stuck right in the middle of two bollinger bands, at a slew of moving averages, and indicators are not reflecting any direction whatsoever. While we can trade off any chart pattern or formation, we use the index charts to give us a clue as to the trend in markets."

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So, "the Russell 2000 is telling us the buyers and sellers are in a tug o' war, with neither having much of an advantage. Again, that's good information to know, but markets won't stay at that point for very long."

"Moving average convergence divergence is flat as a pancake as is the Relative Strength Index right at the 50 level. Also, money flow is not showing its hand either and is simply in nowhere land."

"Stuck in the middle, seems the right description!”

What do we take from this? It’s hard to say… Something is going to happen in the small cap index. This kind of yes-not-yes, no-not-no position is impossible to sustain for long. The only question is, will the buyers run away with it or the sellers?

Time, and our portfolios, will tell.

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