NEW YORK (TheStreet) -- Here's a simplified version of what Federal Reserve Chair Janet Yellen told Congress: The U.S. economy is on track for solid growth after a weather delay, but slack remains in the labor market. Tapering of quantitative easing will continue as long as justified by economic data, and the federal funds rate will remain anchored at 0% to 0.25% for the foreseeable future.
The tone of these comments fueled a stock market rebound on Wednesday and Thursday.
When asked about stock valuations in question and answers, she talked conventional wisdom that valuations were reasonable, but she did mention that valuations on small-cap stocks may be elevated.
The major equity averages jelled with Yellen, as the Dow Jones Industrial Average, S&P 500 and Dow transports started to win the tug of war against the Nasdaq and Russell 2000. On Thursday, the three averages with positive weekly charts attempted to set new all-time intraday highs, but only the transports eked out a new high, at 7775.10.
After Yellen ended her congressional appearances, the Nasdaq and Russell 2000 tugged in the opposite direction. The Nasdaq closed lower the last three sessions despite Yellen's comments, and the Russell 2000 closed below its 200-day simple moving average at 1114.83 for three days in a row.
We have been talking about this tug of war since April 1 when the weekly charts for the Nasdaq and Russell 2000 turned negative with weekly closes below their five-week modified moving averages with declining 12x3x3 weekly slow stochastics.
Here's what it takes for the Nasdaq and Russell 2000 to win the tug of war and pull the industrials, the S&P 500 and transports into the bear's den:
The Dow Jones Industrial Average, the S&P 500 and Dow transports need to have weekly closes below their five-week modified moving averages at 16,364, 1860.3 and 7569, respectively. This is unlikely to occur today.
The weekly charts for the Nasdaq and Russell 2000 need to stay negative on closes today below their five-week modified moving averages at 4115 and 1133.11, respectively.
Wall Street analysts and the financial media are starting to focus on how the Russell 2000 could drag down the overall stock market, and this week Fed Chair Janet Yellen at least recognized the fact that valuations on small stocks are stretched. The bull vs. bear debate thus continues!
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff
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