Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
The Russell 2000 small-cap index led the way lower as the early day rally collapsed in the afternoon. The broader markets closed negative for the day with the S&P 500 right near the 1,200 mark.
On the margin, the weak close is a negative sign as we head into today’s big FOMC announcement. It is difficult to anticipate what “Binary Ben” has up his sleeve, so investors yesterday decided to err on the side of caution and unload some long inventory or add to portfolio protection.
Small caps were the weakest link in yesterday’s session, and the Russell 2000 found resistance at the upper end of a five-week narrowing trading wedge and left a negative outside day on its candle. Small caps have a tendency to give foretelling signs, which is why yesterday’s underperformance of the Russell 2000 is something to keep a close eye on.
The transportation stocks as measured by the iShares Dow Jones Transportation Average Fund (NYSE:IYT) can also be used as a leading indicator, and it too performed poorly relative to the broader market after finding resistance at the near-term downtrend close to the 50-day simple moving average.
Copper, often a leading indicator to global growth, slipped lower for a third straight day, and hit new 2011 lows. The weekly chart below shows a broken longer-term uptrend.
In further signs of risk aversion, the non-cyclical sectors of the S&P 500 closed higher yesterday, while the cyclical sectors closed lower. See the multi-month breakout of the utility sector in the below chart of the Utilities Select Sector SPDR (NYSE:XLU).
A number of signs yesterday pointed to the potential for lower stock prices ahead. Today’s FOMC announcement, among other possible headlines out ofEurope, could easily take the market somewhat higher. Should a rally fail to occur after today’s scheduled news, however, a more opportune time to play the short side in stocks may arrive.
- See Sam Collins’ Daily Market Outlook: What’s the Market’s Next Move?
- See Sam Collins’ Trade of the Day: Randgold Resources Is Ready to Shine
- See Serge Berger’s Trade of the Day: Go Long Humana at $80
