Monday, April 27, 2009

A Quick Look at Small Cap Stocks

Here's a quick snapshot of one of my screens, illustrating a point made in my recent tweet: the Russell 2000 stocks (IWM) are struggling at multi-day highs, accounting for some of the dropoff in new stock highs we've seen recently. That narrowing of the rally is on my radar, as it often precedes more ongoing market corrections. I would become particularly concerned about the upside for the IWM stocks should we turn down in the Cumulative NYSE TICK, as this often reflects buying and selling interest across the broad market, not just among the large caps.


GS751 said...

To me it is a sign of an unhealthy market when I see what I consider Junk Penny stocks go up an extraordinary amount in a month.

Take a look at Pier One imports (Ticker: PIR) It went from 10 cents to $1.80 in the time span of a month. You are dead on when you talked about the lack of a base for the $SPX to push off of.

Daniel said...

I dunno.

To be a ‘contrarian’ is not to be an opposite.

At the least, one should try to be an inverse and a converse simultaneously.

The best contrarian thinking is simply to be ornery. Make pundits define their terms. EXAMINE each assertion one makes oneself, from the inside out, and the bottom up.

Three quick examples, all from highly admired wisemen, the posting by Brett among them..

"especially in an overbought market..."

--Who says this Market is overbought?

What if it is not? To me it looks like it’s precisely where it should be. If we are indeed just into a new Major Bull Market, with all the OB/OS indicators long since tuned and trimmed to Bear Market calibrations-- then their shrieking alerts and alarms (when all is just fine) are exactly the Wall of Worry needed to keep the Rally from overheating.

"..this bear market rally is getting long in the tooth..."

--Who says this is a “bear market rally”?

Just because one MA is still below another doesnt make this a Bear Market. If one waits for ultra-longterm confirmations one gives up much of the profits.

"..the Russell 2000 stocks (IWM) are struggling at multi-day highs..."

--Yes, they are clearly at such highs, and they are clearly not (yet) breaking out above them-- but who says they are "struggling"..?

They don't look at all like they are struggling. They look like they are camping out, singing fighting songs around the campfire, working off prior OB conditions by going sideways (the STRONGEST signal there is) and ready to break out into their next consolidation range.


The point is the implicit underlying assumptions one builds into one’s OTHER conclusions... and maybe a danger of 'GIGO' (a computer term meaning one is carrying an assumption into subsequent conclusions.. tainting their accuracy).

Contrarian Thinking can never be objective-- but it can be rigorous.



Brett Steenbarger, Ph.D. said...

Hi GS751,

I would need to see signs of market weakness among the indicators I track weekly in the context of excessive speculative sentiment to turn bearish.


Brett Steenbarger, Ph.D. said...

Great points, Daniel. It is one reason I supplement my on the fly market views and hypotheses with bigger picture, weekly looks at sectors and indicators--