Is the Russell Overheated? Yes. So What!

The Russell 2000 continues to be the focus of the markets, leading the drive higher. Ever since we noted a few weeks ago that it was waking up it has taken control. Like a child full of energy after getting out of bed, it has been running full steam ahead for the past 3 weeks and has gained over 7%. But those children eventually run out of gas and have to rest. Is that happening with the Russell 2000?

There are indications in the chart of the Russell 2000 ETF that it may need to take a break soon. Momentum indicators show the RSI over 80 on the daily chart. This is higher than it has been in since the move higher off of the financial crisis lows. The MACD is also approaching the level where it topped in December last year.

Both of these can continue to move higher. There is no law that overbought cannot get more overbought. And this will lead to a lot of financial pundit talk of a coming pullback. But remember that a “correction” can happen through time as well. Moving sideways could reset these momentum indicators, like a rest and a snack reset a toddler.

On a longer scale the latest move shows real strength in the Russell 2000. If it does pullback over the next week look at it as a buying opportunity.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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