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Russell Leads the Way Down as MACD Generates Sell Signal

David Becker
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Russell Leads the Way Down as MACD Generates Sell Signal

Stocks were hammered on the open on Thursday as European distress spilled over into US markets. The S&P500 opened 1% lower in the first few minutes and rallied throughout the day. It bounced off the support provided by the June 9 high and the June 26 low.

By analyzing the behavior between the Russell 1000 and the Russell 2000 we can quickly see the change in the market that has shown up over the last 3 months. Currently, the Russell 2000 is clearly weaker than the Russell 1000, which means the smaller stocks are the weakest.

Reports today confirm that Banco Espirito Santo, the Portuguese bank that generated volatility in European markets Thursday, has a sufficient capital buffer to cover the parent’s liability and is also protected by the ban on short sales. Portugal’s bond and stock markets are rallying Friday. The 10-year benchmark bond yield is off 10 basis points, recouping about a quarter of the week’s yield increase. Portugal’s bourse is up a little more than 2%, near midday, which is about a fifth of the week’s decline. More generally, the Dow Jones Stoxx 600 is posting modest gains Friday snapping a five-day decline, led by financials, which are up more than twice the index.

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The $RUT bounced near the 50-day moving average which proved to be short-term support. The next level of target support is the 200-day moving average at 1138. Momentum on the small cap index has turned negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal. The trajectory of the MACD is negative pointing to lower future prices.

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