January 20, 2012 Technical Analysis – The Russell 2k Has A Good Week:
The market continued to rally during the shortened week for the Dr. Martin Luther King holiday. The Russell 2k index followed the rest of the market this week and rose as good news came in from the housing market and lower unemployment. The Russell 2k helps us measure risk appetites.
The Russell 2k rising is s good sign that market participants are willing to assume more risk. Small caps will be important if the overall market is healthy and investors feel stocks are more attractive than bonds. When small caps get a lot of attention, bonds will be out of favor and with the low yields in treasuries, there aren’t many places left for high returns. We will be watching the Russell 2000 index carefully to see if the Dow Jones will reach new highs. Bad news from Europe didn’t dissuade investors from jumping into small-capitalized stocks. Are investors still taking a defensive, safe posture or are they willing to try to get higher returns this year? The Russell 2k will let us know. For the week ended January 20, 2012, the Russell 2000 index outperformed the DJIA. See graph above.
