Email of the day (2)
"I have often wondered why you do not select Russell 2000 for hedged shorts, as one normally gets the biggest bang for the buck with this index!"
David Fuller's view No reason other than familiarity as the
Russell 2000 (RTY) (p&f, monthly
semi-log, weekly & daily)
is not on Bloomberg's WEI page which I usually have open on one of their two-panel
screens. Instead, for the 'Americas' portion WEI shows the DJIA, S&P 500
and Nasdaq Composite. But thanks for the suggestion as RTY is certainly competitive,
with a 1-point dealing spread on IG Index.
What can we conclude on a factual basis from the RTY charts, on both a short-term, medium and longer-term basis?
It is currently overextended relative to its medium-term trend approximated by the rising 200-day moving average. There was a weekly key reversal at the high earlier this month and although the step-sequence uptrend is still intact, the persistent advance since the August 2010 low near 600 does show a loss of momentum. This tells us that supply and demand are now evenly balanced, following the clearly demand-dominated earlier advance. These factors, plus some psychological resistance from the 2007 highs, suggest a probability that we will see some additional mean reversion towards the MA, most likely in a sideways to somewhat lower ranging phase.
On a longer-term basis, since the 2008 to early-2009 slump did not break the 2002 low and RTY recently exceeded its 2007 highs, if only just, I am even less inclined to expect anything like the slump forecast in the interview accompanying Email (1) above, without a dramatic spike in energy costs.