Equity Index Update
Brad Sullivan
The index markets were marked lower with afternoon selling and “hands in pocket” buying as players decided not to support the bids at the recent high zones. The lead index selling was seen in the Russell 2000 and Midcap 400 indices. Both markets, which have underperformed in the last two weeks (after hitting all-time highs), were hit as dollar flows seem to be moving towards large cap indices. This can be seen in the table below which lists the spreads between the DJIA-Russ 2k, SP and Russ 2k, DJIA and Midcap 400 and the SP-Midcap. As you can see, the large cap indices put a dramatic rally on the board versus their smaller counterparts. Of course…the Midcap is still higher YTD versus the DJIA and SP. But, the relative weakness in the Russell is signaling a pretty dramatic shift in money flow. In fact, the SP has traded to its highest level vs. the Russell since 2003 – the beginning of this bull move. This is significant. And its significance lies in the fact that every bull market must rotate its leadership…if this signifies a dramatic shift towards large cap equities I suspect we will continue sharply higher throughout 2007.
The index markets were marked lower with afternoon selling and “hands in pocket” buying as players decided not to support the bids at the recent high zones. The lead index selling was seen in the Russell 2000 and Midcap 400 indices. Both markets, which have underperformed in the last two weeks (after hitting all-time highs), were hit as dollar flows seem to be moving towards large cap indices. This can be seen in the table below which lists the spreads between the DJIA-Russ 2k, SP and Russ 2k, DJIA and Midcap 400 and the SP-Midcap. As you can see, the large cap indices put a dramatic rally on the board versus their smaller counterparts. Of course…the Midcap is still higher YTD versus the DJIA and SP. But, the relative weakness in the Russell is signaling a pretty dramatic shift in money flow. In fact, the SP has traded to its highest level vs. the Russell since 2003 – the beginning of this bull move. This is significant. And its significance lies in the fact that every bull market must rotate its leadership…if this signifies a dramatic shift towards large cap equities I suspect we will continue sharply higher throughout 2007.
I have also included a couple of other charts…one of which shows the top 100 issues of the SPX and their daily plotted net change from the opening print (on a breadth basis). What is interesting about this is that the distributions on the top and bottom end are significant – statistically speaking – than one would anticipate. Essentially, this shows the potential to let winners run in the course of one’s day trading.
The other chart I have placed is the Russell 2k and its % differential from its 20 day MA. Yesterday the index closed below its 20 day MA and this has the potential to lead to some more aggressive selling in the near term.
