The price broke above the high from March 16 for the first time on Tuesday this week
The Russell 2000 joined the stock market party this week by moving above the March 2021 high for the first time during Thursday's trading. That high came in at 233.78 and although that level was tested in June on a few occasions, the index high could not be breached. The reason? Worries about higher yields.
The discounting of future earning at a higher rate, coupled with high multiples for some of the small cap stocks, was not positive for that market sector. So sellers leaned and pushed the price lower (and away from the ceiling on the tests).
However, since the last bottom in August stalled just above a lower swing area between 206.40 and 210.03, the buyers have shown up at key levels.
For example:
- Buyers in early October bought against a lower trend line. Bullish
- The price on October 27 stalled at the near converged 50,100 and 200 day MAs. The low reached 222.81. The 200 day MA was at 221.82. The 100 day MA was at 222.80. Buyers leaned against the key MAs. Bullish.
- The price moved above the swing highs between 232.80 and 233.78 and raced away from that old ceiling on Wednesday. Bullish.
The index did decline marginally yesterday, but since the bounce off the October 27 low against the cluster of MAs, the low to high move took the index up 8.88% in 8 trading days. Not bad. Since August 19 (55 days), the index is up 15.5%.
In addition to the bullish technical clues, the fall in yields over the last few weeks, is providing a tail wind for the index as well. The market is more comfortable with idea that rates may go up in the 2nd half of 2022, but that will still be ok. In the meantime, there is still a a springboard for new businesses to build businesses in a post pandemic economy and there seems to be enough money still slushing around to fund the next generation (including the meta-universe).
What would hurt the bullish story?
- Yields moving back higher
- Technically a move back below the old ceiling.
A move below the old swing levels implies a 4% decline from the high today. Is that possible?
Sure. But when you get a break - and we saw a key break this week - the market will go with it and bet the fundamental storyline remains intact.
