Tuesday, October 27, 2009

Small Cap Stocks Have Been Leading The Market Lower



Above is a daily chart of the Russell 2000 small cap index ($RUT) and in the lower pane is a ratio chart that compares the small cap index to the S&P500.

What we are seeing now is a classic double top formation that has developed in the small cap index. Today this index posted its first close below a very significant trendline which began back in March. I usually like to see 2 or 3 closes below a trendline to confirm that a change in trend has taken place.

Notice in the lower pane how the ratio line which has been leading the market higher since last March has broken its trendline several days ago indicating that small caps are now weaker than the overall market. Lets see if this weakness continues.

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