Based on common sense, the Russel is not only vulnerable, it is a death trap. Why? Based on natural law and common sense, it is easy to see that the Russell 2000 is at lofty levels because the prices of small cap stocks are easily manipuled. Dow 30 stocks, for example, are harder to goose. In cooperation with the Fed, crime gooses stock prices so as to profit from derivitive positions. How do I know crime is involved?
The existance of derivatives creates the incentive to manipulate prices of underlying securities. Crime uses political influence to become positioned above the law and then acts on incentives. Wall Street crimes are never prosecuted other than a few fines here and there. The fines are a business expense. Most financial crimes are compatable with the Fed's goal of a wealth effect so there is incentive to prosecute. Behavior always follows incentives unless there are consequences. With no consequences, count on behavior being compatable with incentives.
How, does this end? The economy is rotting from the inside out, due to interventions. The whole system will collapse. Traders are slowly adapting and crime is becoming less profitable. Crime will leave and the index wil collapse. One of these things will happen first but I don't know which.
More relate commentary at the Common Sense Economics Blog, http://quillian.net
Edited by James Quillian, 19 February 2014 - 01:35 PM.
