RUSSELL 2000 FINDS SUPPORT AT 200-DAY AVERAGE -- SO HAVE THE DOW TRANSPORTS -- TWO-YEAR COPPER HIGH BOOSTS COPPER MINER ETF -- FREEPORT MCMORAN IS BIGGEST PERCENTAGE GAINER IN THE S&P 500
WHY IT'S IMPORTANT TO TRACK THE PERFORMANCE OF SMALLER STOCKS... One of the concerns expressed recently by several technical analysts (including myself) has been the relatively weak performance by small stocks. That's because they often tell us more about the true state of the stock market than major market indexes that are capitalization weighted and, as a result, dominated by the largest stocks. Historically, smaller stocks usually peak before large cap stocks near market tops. Smaller stocks also have more influence on market breadth than larger stocks. That's because there are more of them. The names of the various market indexes tell the story. The S&P 500 includes 500 of the largest stocks. The Russell 2000 Small Cap Index includes 2000 stocks. The S&P 400 Mid Cap Index and the S&P 600 Small Cap Index combined include twice as many stocks as the S&P 500. That's why it's important to track the performance of smaller stocks. And why today's message carries some good news. See Chart 1.
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Chart 1
RUSSELL 2000 BOUNCES OFF 200-DAY AVERAGE ... Chart 1 (above) shows the Russell 2000 Small Cap Index ($RUT) finding support at its 200-day moving average. Just a month ago, the RUT hit a record high. It has since lost -5% (while the S&P 500 has been basically flat). The ability of the RUT to find support at its 200-day line, however, has prevented a more serious technical breakdown. So has its ability to stay above its May lows (black line). And that in turn is helping to stabilize the rest of the market. The RUT, however, still has a lot of work to do on the upside to repair recent damage to the downside. First, it needs to clear its early July low near 1400 (flat red line). [Broken support becomes new overhead resistance]. Then it needs to climb back above its 50-day moving average (blue line). The weekly bars in Chart 2 (below) show another important reason why the Russell 2000 needs to find support around current levels. It shows the RUT testing a rising support line drawn under its 2016 lows. The RUT needs to stay above the green line to keep its uptrend intact. That would be good for the RUT and the rest of the market. Any break of that line could be bad.
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Chart 2
THE DOW TRANSPORTS ALSO BOUNCE OFF 200-DAY LINE... The other recent concern has been weakness in the Dow Transports. That situation is also showing improvement. Chart 2 shows the Dow Jones Transportation Average bouncing twice off its 200-day average this month. And it may be on the verge of climbing back above its 50-day line. It's usually better for the market when the Dow Transports and Industrials are climbing. Like the small caps, however, the transports are still well off their July highs and have a long way to go to reach them. Any failure to do so could cause problems later on. The same is true of small caps.
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Chart 3
RISING COPPER PRICE BOOSTS MINERS -- FREEPORT MCMORAN IS S&P 500 LEADER... Prices of base metals continue to rise. Chart 4 shows the price of copper rising today to the highest level in more than two years. That's giving a big boost to copper miners. Chart 5 shows the Global X Copper MIners ETF (COPX) gaining more than 3% on the back of copper's gains. That's also giving a lift to Freeport McMoran (FCX) which is climbing 5% today (Chart 6). That's enough to make it the biggest percentage gainers in the S&P 500 today. Copper, aluminum, and steel stocks are making materials the day's strongest sector. That's boosting mining stocks tied to industrial metals. Gold stocks are also bouncing today, but have lost ground this week as global tensions have eased and global stocks have strengthened.
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Chart 4
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Chart 5
