Russell’s Latest Buy Signal Confirmed by MACD

Big tech stocks fell on a broad front on Thursday while mid and small caps rose modestly. Thursday’s mixed close followed a rally on Wednesday that resulted from what was considered a dovish presentation by Federal Reserve Chair Janet Yellen.

Following a two-day meeting of the Federal Open Market Committee, Yellen said that although the Fed would look at the possibility of raising interest rates, it would again be guided by economic results. But, as anticipated, she dropped the term “patient,” indicating that a hike may happen this year.

Apple Inc. (NASDAQ:AAPL) made its debut on the Dow Jones Industrial Average, but the stock fell 0.8%, and the index was down 0.7%.

Biotech stocks led with Biogen Idec Inc (NASDAQ:BIIB) up 1.3% following a positive recommendation by Credit Suisse Group AG (ADR) (NYSE:CS). Investors await the test results of the company’s Alzheimer’s treatment, expected today. (See the Trade of the Day for another top biotech pick.)

The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) jumped 2%. Health care, which is traditionally considered a defensive sector, rose 0.6%.

Crude oil futures fell 1.6% to $43.96 a barrel. Gold gained 1.5%, closing at $1,168 an ounce.

The U.S. dollar recovered all of Wednesday’s losses against the euro, which fell to $1.064 after jumping to $1.10 following the Fed’s statement. Goldman Sachs Group Inc (NYSE:GS) predicts that the euro will fall to $0.80 by the end of 2017.

U.S. Treasury bonds lost ground, causing the yield on the 10-year note to spike 5 basis points to 1.98%.

At Wednesday’s close, the Dow Jones Industrial Average fell 117 points to 17,959, and the S&P 500 lost 10 points at 2,089. The Nasdaq rose 10 points to 4,992, and the Russell 2000 finished up 3 points at 1,255.

The NYSE’s primary market traded 738 million shares with total volume of 3.3 billion, and the Nasdaq crossed 1.7 billion. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, advancers were slightly ahead of decliners.

Russell 2000 Chart
Click to Enlarge

Since many of our readers have asked me to graphically illustrate my proprietary indicator, the Collins-Bollinger Reversal (CBR), I’ve applied it to the Russell 2000. This internal, automatic trading system has flashed seven buy signals for the index since May and no sell signals.

Like any trading system, it is not perfect and gave two false buys in September. However, it also signaled five almost perfect buys in October, December, January, February and, most recently, this month.

When combined with other systems, like MACD, the success ratio improves. In fact, the two false signals in September were not only not accompanied by MACD support, but the first was countered by a MACD sell.


Although not perfect, during the past 10 months, the CBR signals on the Russell 2000 have been accurate more than 70% of the time.

The CBR is an automatic system that I developed after years of analysis and is based on reversals through Bollinger Bands accompanied by larger-than-average volume and confirmed with a MACD indicator. The bands are constructed using 2 standard deviations from a 17-day simple moving average.

Any system, if logically developed and applied with discipline, is better than no system. And back-testing is an important tool in developing a trading technique. Please accept my invitation to discuss systems that you, my readers, have developed. And, yes, coin flipping is less than 50% accurate.

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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