5 replies to this topic

[arbman]

Take a look at the index components (covering 87% of the index composition);

Sector.............% of Index
Financial Services......21.4%
Industrial Materials....14.9%
Healthcare..............12.4%
Business Services.......10.6%
Hardware.................9.9%
Consumer Services........9.0%
Consumer Goods...........5.3%
Software.................4.9%
Energy...................4.8%
Utilities................3.0%

The low rates from the small mortgage or loan companies are written in the first line for the performance since the rates went lower. The reason why the index underperformed probably since the summer lows. Then comes the industrial materials, it makes sense for the Russell 2000 to rally now than earlier since the remaining service industry issues follow at the end of the bull markets, indeed you want to see excess liquidity to spill into them...

So, my best interpretation about the Russell 2000 as an economic indicator is that it is tracking from the middle to the end of the bull markets at the moment. Indeed, the last bull rally last May ended when R2K and materials topped. There is an indication of expanding breath, but its underperformance so far since the last summer and compared to the previous R2K vs broad market rallies since 2001, is also an indication of the higher yields slowly choking the financials, the commodity based sectors, however I think the service sector is still healthy and it will be the reason why a recession might not follow...

So, what keeps the R2K going, as I said, is the later bull market issues according to the current composition, imho. The new leader in town is the energy and commodities lately, I am thinking this is not in the early stages of an intermediate term uptrend for the same reason...

On a separate note, I believe the large cap consumer and tech indices are the broadest and most accurate measure of the economic growth. Please do not refrain from commenting on...

- kisa

[arbman]

Let me also illustrate the current rally this week...

http://ichart.finance.yahoo.com/z?s=^GSPC&t=5d&q=&l=off&z=s&c=^IXY,^IXR,^IXE,^IXM,^IXT,^IXV,^TXV,^IXB,^IXU&.png

- kisa

[S.I.M.O.N.]

very well written and descriptive post, i was thinking along similar lines also. Russel is the last to "breakout" for this very reason. Thnks for your informative posts.

[CLK]

Kisa, Good post, however, with the secular rotation into large caps, this to me is just normal cyclical rotation back into small caps. We are in the 1990's again, imo, nothing in the 2000's to compare this market to.

[arbman]

You are all welcome and thanks same for sharing your own research as well. We are the anchovies in this market and we can only help each other, we should not bash each other for the different market views, but I think it is OK to be entertaining... CLK, the corrections or trading ranges are different than the bear markets in my mind. I am in the trading range or correction camp for the first half of 2007 and a total blow off in the second half into 2008. See my points are very subtle, not a perma-bear type, I am not. It's just this market does not motivate me to weight in the long side... - kisa

[dcengr]

Financials ready to implode. RUT will take a nose dive when it happens. Watch them rates go up, and banks will get screwed.