The Russell 2000 Is Looking a Little Sickly

Stocks struggled to end Wednesday with a slight gain, even though crude oil and energy stocks rallied. And banks continued to provide profitable quarterly earnings.

We saw better-than-expected earnings from the energy sector, up 1.4%, and the financial sector, up 0.8%, but most of the gains in price were made before 2 p.m. The remainder of the day was spent by institutional profit-taking, which drove the Dow Jones Industrial Average down almost 50 points from their high. Despite the afternoon selloff, eight of the 11 S&P 500 sectors closed with gains.

Positive quarterly results from Morgan Stanley (NYSE:MS), U.S. Bancorp (NYSE:USB) and Halliburton Company (NYSE:HAL) drove the early gains.

Crude oil rose as a result of an EIA report that crude oil stockpiles declined by 5.24 million barrels, and that pushed the price of crude oil (WTI) to $51.59 per barrel, up 2.6%.

At the close, the Dow Jones Industrial Average rose 41 points to 18,203, the S&P 500 gained 5 points, closing at 2,144, the Nasdaq rose 3 to finish at 5,246, and the Russell 2000 closed at 1,223, up 5 points. The NYSE’s major exchange traded 797 million shares with total volume of 3.4 billion shares traded, and the Nasdaq crossed 1.5 billion shares. On the Big Board, advancers outpaced decliners by 2.3-to-1, and on the Nasdaq, advancers led by 1.5-to-1. Blocks on the NYSE increased slightly over Tuesday’s total of 5,045.

An inverted “V” is considered a topping formation with limited downside. Higher volume on down days and the failure to rise to the 50-day moving average at $282 support this view on the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY). But the exchange-traded fund has managed to hold the support line at $275 and is now struggling to attack the first resistance at the 20-day moving average at $280 and the corresponding resistance line there.

Volume is higher on down days, and that’s a negative.

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Like the S&P mid-caps, the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) has an overall near-term bearish look — observe its possible “double top.” On the positive side, it has held its support line at $120 and is now moving against the resistance at $123.

However, note the lack of volume in the last two days, indicating the struggle to maintain upward momentum.

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While still in a long-term bull market, the near- and intermediate-term trends look in doubt. We haven’t had a correction since the June selloff. But if we get one before mid-November, I’d look for a drop to the MDY’s and the IWM’s 200-day moving averages at $265 and $113, respectively.

If that occurs there will be bargains to be had just before the holidays.

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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