This bull market in U.S. stocks is aging. How much more life is left in it?
That is the key question. Here is an indicator with a good record to answer that question. Let’s explore with a chart.
Please click here for an annotated chart of the iShares Russell 2000 ETF IWM. A similar conclusion can be drawn from a chart of the Russell 2000 Index RUT. Please note the following from the chart:
• Small-cap stocks have broken out to a new all-time high.
• This is happening when major indexes such as the Dow Jones Industrial Average DJIA, and S&P 500 SPX, are below their highs.
• The Russell 2000 has made higher lows, as shown on the chart. This is a positive.
• The RSI (relative strength index) pattern shown on the chart supports the breakout.
• The breakout is on low volume. That is a negative.
• A shallow pullback from this level will not negate the positive implications of this breakout.
End of the bull market
Near the end of the bull market, large-cap stocks perform much better than small-cap stocks. The reason is rather simple. In a bear market, large-cap stocks lose less money than small-cap stocks do. In a deep bear market, small-cap stocks that are darlings of the bull market can be decimated. For this reason, the “smart money” (professional investors) tends to pull out of small-caps when they see the bull market potentially ending.
Today the smart money is pouring money into small-cap stocks. The implication is that this bull market has further to go.
Investors should not rely on any one indicator or any one form of analysis. Investors are well-advised to rely on a sophisticated model that is comprehensive and has a proven track record over both bull and bear markets…Read more at MarketWatch.
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