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Pastimes : The Philosophical Porch
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From: Rarebird1/14/2010 8:59:53 AM
   of 26251
 
Transcendental Market Fragments:

Russell 2000:

The Russell 2000 Index of small stocks has benefitted substantially from the early year reinvestment cash going into that sector. The January Effect has its greatest impact in the smallest 2000 stocks of the largest 3000. According to the volume oscillator, some kind of uptrend is likely to continue into the first week of February, suggesting that while there should still be a pullback from the expected high late this week or early next week, it will be bought and the index is likely to move to a higher high thereafter into early February.

The rally into early February is likely to be the high of the year for the small stocks (and could start to present a spread trading opportunity as the bluer chip indices continue higher and the small stocks tail off). Virtually all bull moves end with major bearish divergences such as new highs in the blue chips which are not confirmed by new highs in the broad market. I think the smallest stocks should start weakening as the January Effect wears off and analysts start racheting down their excessive earnings estimates for the rest of the year. Those estimates are based upon a recovery from recession. But, that recovery just isn't happening and history is a bad guide to this economy. Costs have been cut to the bone at most companies and won't provide an earnings kicker like they did last year. And, with so many workers on reduced income, spending less and saving more, it isn't likely that company earnings can continue to rebound.
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