The Russell 2000 Is Diverging from the Mid-Caps — Time to Worry?

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On Friday, stocks rose following a strong jobs report. But the better-than-expected employment number will probably lead the FOMC to raise short-term rates following its Wednesday announcement that traditionally follows the two-day meeting.

Despite the acceptance by investors of a rate hike, stocks generally ended the week just slightly lower. The S&P 500 lost 0.4% for the week despite a gain of 0.3% for the day. It was the first weekly loss for the index since January, and the loss was blamed on crude oil (WTI) declines. On Friday crude oil fell 1.5%, closing under $50 per barrel, its fifth day of consecutive losses. Energy stocks on the S&P 500 lost 2.6% for the week.

The yield on the 10-year Treasury note rose to 2.6% on Friday vs. 2.5% last Friday.

At the close the Dow Jones Industrial Average gained 45 points at 20,903, the S&P 500 rose 8 to close at 2,373, the Nasdaq gained 23 at 5,862, and the Russell 2000 closed at 1,365 for a gain of 5 points. The NYSE’s primary exchange traded 838 million shares with total volume of 3.4 billion shares. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 2-to-1, and on the Nasdaq, advancers led by 1.4-to-1. NYSE blocks fell to 8,009 from 8,536 on Thursday.


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The Russell 2000 Is Diverging from the Mid-Caps

By piercing the support line at $138, and the 20- and 50-day moving averages at $138.87 and $136.67, the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) has created a divergence with the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY). The MDY (not shown) has thus far held all of its support lines, except its 20-day moving average at $315. The MDY closed on Friday at $311.55.

Conclusion: The damage to the IWM is not yet a serious divergence but is a warning that the market may take a rate hike more seriously than expected.

Currently the major indices have held their immediate support: The Dow Jones has held the green line at 20,737, as has the S&P 500 at 2,358, and the Nasdaq reversed from 5,828.

The obvious item of concern occurs on Wednesday with stockholders’ reaction to the Federal Reserve’s latest move.

Today’s Trading Landscape

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

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

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