Must-See Charts: Peaking Russell 2000 a Sign Another Crash Coming?

 

NEW YORK (TheStreet) -- The Russell 2000 peaked on July 1 while the other major averages continued to set new highs, including on Friday. The weekly chart for the small-cap stock index is now technically negative.

Why should you care? Because the signs are similar to what happened before the 2008 market crash.

As it is doing today, the Russell 2000 peaked first among the major averages back in July 2007. The Dow Jones Industrial Average and S&P 500 peaked in October 2007 and the Nasdaq a month later. The Dow Transportation Average continued higher until May 2008.

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This past May Fed Chief Janet Yellen, answering questions before Congress' Joint Economic Committee, said there were pockets of "potential misvaluation," including overvalued small-cap stocks. After these comments the Russell 2000 set its 2014 low on May 15 before rebounding to the all-time high on July 1.

My market-timing signal confirms significant stock market highs occur when the five major equity averages have simultaneous weekly closes below their five-week modified moving averages with declining technical momentum.

Let's take a look at the daily chart for the Russell 2000.

Courtesy of MetaStock Xenith

From the lower left to the upper right the Russell 2000 (1146.92) had been above its 200-day simple moving average (green line) since Nov. 28, 2012, until April 16. The small-cap index was trading around its 200-day SMA when Janet Yellen made her May 7 comments. The index shrugged off the overvaluations, setting an all-time intraday high at 1,213.55 on July 1. Note the "double top" above 1200 on March 4 and July 1.

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