Monday, October 7, 2013

indexes diverge

You may have noticed last week the Russell and NAS were setting new highs as the SandP 500 and DJIA were down.  Most of the time we expect these indexes to move in synch not diverge.

So as we were seeing a head and shoulders on the SPX one would expect to see an inverse Head and shoulders for RWM (inverse Russell 2000).  We didn't see that.  Instead we saw a "W" pattern.  Take a look:

So how do we explain this divergence from a cycle perspective.  I looked and I saw that instead of the 23TD cycle being dominant for the Russell 2000 that the 1/2 Wall Cycle (~~50TDs) was dominant.  So this cycle was topping (dominating the Russell) as the 23TD was bottoming (dominating the SandP 500).  See for yourself:

So we cannot assume that these indexes will behave the same going forward.  It appears the 1/2 Wall cycle is down (Russell) now and the 23TD cycle (SPX) should be turning up now.  In short the Russell should lead any downturn, so watch the Russell for the expected move by the larger (DJIA, SPX) stock indexes.

GL traders


  1. While R2K was down over 1% today the SPX and DJIA were down less than 1%. Watch the R2K to see if we get a downtrend - small caps should lead.

  2. Agree, small caps should lead.
    There is a little gap on RWM just above 19. I suspect that could get covered.

  3. Doc - the NAS and R2k down nearly twice as much percentage wise as SPX and DJIA, if they lead then large caps have some steep declines ahead.

  4. The larger stocks (DJIA and SPX) tried to rally as would be consistent with the 23TD cycle, but got beaten back by end of day as the longer cycles seem to be suppressing the 23TD cycle.

    The smaller cap stocks seem to want to lead the market lower (R2K and NAS) as they closed wit a .4-.5% loss

  5. When you wind a spring tight and let it go you get quite a reaction as we saw today

  6. ...with follow through on Friday.

    Hmm, curious as to how you are seeing things now for Nov/Dec. I believe the cycles your plot suggest weakness into end year.