The Most Important Chart to Watch Right Now

by Sam Collins | May 23, 2014 2:34 am

The major indices scored small gains on Thursday with light volume in response to soft economic data. This was in contrast to the small-cap Russell 2000, which popped almost 1% after lagging for weeks. Biotech stocks also rallied, with iShares Nasdaq Biotechnology (IBB[1]) up 1.9%,which helped the Nasdaq gain 0.6%.

Existing home sales for April rose 1.3%, which was below expectations of 2%. Weekly initial claims increased from 298,000 to 326,000, above expectations of 305,000. And the Conference Board’s leading indicators increased 0.4% for April, missing economists’ target by a small margin.

At Thursday’s close, the Dow Jones Industrial Average rose 10 points to 16,543, the S&P 500 gained 4 points at 1,892, and the Nasdaq jumped 23 points to 4,154. The NYSE traded a total of 2.8 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.8-to-1, and on the Nasdaq, advancers led by 2.1-to-1.

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The Russell 2000 made a show of strength Thursday, but it is caught in a squeeze between the downtrend line at 1,120 (resistance) and the neckline of a possible head-and-shoulders breakdown at 1,083.

Michael Ashbaugh noted that Tuesday’s downturn was “driven by a volume spike,” which was the highest volume since March 4, when the index made a new high.

Conclusion: Even though the Dow Jones Transportation Average made a new all-time high Thursday, the other major indices floundered, barely making headway. So the Russell 2000 is the focus of the question that dogs the stock market: Can the broad market, including the small caps, move to new highs?

The larger-cap indices like the S&P 500 have a solid floor of support. But the Russell has very shallow support and big potential downside as it flounders below its 200-day moving average. It is possible for the Russell to break its support and head to about 1,000. And a breakdown of 100 points would almost surely have an impact on the broader market.

Thus, until the Russell 2000 gives a clear indication of its near-term direction, I suggest buying being very discerning with stock purchases while accumulating a cash reserve.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

Source URL: https://investorplace.com/2014/05/daily-stock-market-news-watch-small-cap-russell-2000/

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