Rollover RUT

There’s an interesting disconnect between RUT the Russel 2000 small caps, and the rest of the market (as represented by SPY and QQQQ).

RUT has rolled over (though early stage) while the others have not yet.

RUT Rollover 17Apr2013

A bit busy as charts go, but some things can be quickly addressed and set aside. USO – oil ETF – is an oil colored black line along the bottom. It had come down early in the year, has done some ‘ringing’ since then, and right now is falling hard. Not a time to be in oil, and it says economic activity is low – folks not driving a lot.

Copper is a nice coppery dark red line for JJC. It, too, is dropping hard. Bad news out of China and the EU. Low demand and thus economic activity is off.

Next up is that gold colored line for GLD. Also plunging. Gold is acting like a commodity (which it is…) not like a ‘safe haven’.

For a “safe haven” look at that nearly flat green line across the middle. TIP the Treasury Inflation Protected Securities. That’s the “safe but not paying much and a lousy trade vehicle” ticker. (Good trade vehicles have a lot of volatility with some predictability. The last thing you want in a trade vehicle is something that just crawls along slow and steady…

At the far left is a bright red line for TLT – long duration bonds. It tends to move in opposition to stocks. So when spy is down, it is up. It peaked in July, and then dropped toward the right. As of about Mid-March, it is in an up trend. It inflects up just about the time RUT peaks and goes flat. Folks are running for cover into bonds. (Likely folks leaving the Euro and EU domain after the ECB decided to declare banks there were not safe…)

Looking at the “egg yolk yellow” line of QQQQ we have “Tech” under performing SPY and RUT. A bit unusual in recent history. Apple is having “issues”… and it is a large percent of the QQQQ.

Which brings us to SPY. Still rising trend, though “with a dip”, and with the indicators on it still saying “bias to long”. Yet that RUT tells a different story. RUT is more sensitive to weakness as when folks are afraid, they tend to not buy small companies. It tends to “roll over” first. (It also out performs when folks feel good and want to bet on small companies).

So what do the RUT “indicators” say?

RSI has had a ‘near 80’ and is now having “lower highs”, time to be out and trend likely changing to negative.

The Simple Moving Average stack is still ordered fastest over slowest, but fastest has gone flat and is looking like it is turning down.

MACD has clearly headed down with “red on top”, but is also crossing the zero line. Not only is the “swing trade” to be out (MACD crossover to down slope) but the “trend” is negative. MACD below zero. Time to be out.

For ADX, it is inflected down and falling with DMI having “red on top”. Also saying time to be out.

SPY and QQQQ are not yet that dour. But RUT will be more sensitive to negative news.

So looking at all this, it looks like we’re setting up for a “bear market tun” and RUT is calling the rollover.

Here’s the live chart at Bigcharts.com

Now lets look at SPY:

SPY live chart

SPY has a slightly different story. RSI is showing ‘lower highs’, but the SMA stack doesn’t look ‘going flat’ yet. MACD is weakening sideways, but not yet saying “bear market”. ADX has gone way low and is saying trend weak to nonexistent. DMI is ambiguous. It is “red on top”, but chopping back and forth fast.

Not a clear “be out”, but not a time to be in, either. Perhaps a “buy the dip” moment, but that RUT doesn’t think so.

All in all, more like “late to roll over” than “dip in a bull market” IMHO.

DIA the Dow Jones 30 Industrials are laying more or less on the same trend line, so won’t be much different.

QQQQ is quite a bit lower, so lets look at it next.

QQQQ Nasdaq 100 vs SPY

Clearly underperforming the S&P 500. ADX is way low at about 12, so trend is very weak (so we ought to be using Slow Stochastic to trade fast trades or find something else to trade). DMI is kind of confused (as it tends to be in weak trend conditions).

MACD is flat sideways with a bit of wobble, so a steady up trend, but not strong (only a little above zero). RSI is also oddly flat with a wobble around the midline.

All in all, not a very good ticker to trade, and not looking strong.

In Conclusion

Overall, it isn’t a strong call either way, but it looks to me like RUT is giving an early indication of a significant top forming. QQQQ never really got into the act anyway, and both DIA and SPY are still looking fine, but in the early stages of a rollover look a lot like a ‘dip in a bull run’. IMHO, RUT is “calling the ball” on a shift over time. If that is correct, we ought to see DIA and QQQQ and SPY all “fall in line” with charts looking more like that RUT chart over the next week or so.

So time to watch them closely.

Also it’s clear that the “flight to safety” is on, and it’s going into bonds, not metals.

Update:

It looks like the Emerging Markets EEM rolled over first, followed closely by the EU markets EZU. So we’re now catching up. It looks like ‘bad things’ slowly working up the risk food chain…

EZU the EU Fund vs EEM Emerging Markets and USA

RSI touched 80 then dropped. MACD had a crossover downside ‘red on top’ then eventually crossed the zero line. DMI choppy, but with a fair amount of ‘red on top’ time.

All in all, a rolled over market. Looks like emerging markets are even worse.

As the $US Treasuries are still the lowest risk asset class, that’s where the money is running…

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