I guess rubber band was quite stretched and was ready for some snap back. Generally a move beyond 62% retracement is beyond my pay grade. In other words it's not worth the risk for me. A position which took 4 hours to
get somewhere can easily vanish in a NY minute. If market internals were not -ve, would have held some but not when they are -ve at best.
Last edited by mfbreakout; July 10th, 2014 at 03:10 PM.
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No big trades lined up...potential long at 53.1 but looks weak.
Overall still looking for longs but as we know it's kind of muddy water down here so not falling in love with anything yet.
On the daily chart (below) it could drop to the cloud but I'm thinking it might just go up from here...we'll see
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Small-caps tend to get lot of attention by traders/investors because of their tendency to outperform bigger companies over large markets cycles. Many of these companies tend to trade with less dollar volume compared with large-cap equities, are highly sensitive to domestic growth expectations, and can be seen as a good indicator of risk sentiment beneath the surface.
On the latter point, I know everyone remains mesmerized by the Standard & Poor’s 500 Index SPX -0.49% , but the reality is that many stocks in the U.S. have been struggling in 2014, with market cap being a key decider of just how tough it's been. The small-cap Russell 2000 Index RUT -.00% meaningfully underperformed the S&P 500 this year in a shocking way, causing them to give back all of their 2013 outperformance, and sending it's price ratio relative to large-caps all the way down to 2011 levels.
Approximately 24% of the Russell 2000 is made up of Financials, which we are underweight in our equity sector ATAC Beta Rotation Fund BROTX -0.54% . Take a look below at the price ratio of Russell 2000 ETF IWM -0.91% relative to the S&P 500 SPDR ETF SPY -0.07% . As a reminder, a rising price ratio means the numerator/IWM is outperforming (up more/down less) the denominator/SPY. A falling ratio means underperformance.
That is utterly brutal, and came out of nowhere. This implies two things which are important to keep in mind. First, we remain in an unprecedented environment. For small-caps to be collapsing this hard and suddenly is unusual when considering where the Federal Reserve thinks the domestic economy is headed. Second, if most money is hiding out in the S&P 500, then we are seeing a narrowing of attention by traders.
On that point, it is often said that the narrower a rally gets, the closer it is to nearing its end. While this will only be known with hindsight, it is worth nothing that "staircase up/elevator down" dynamics haven't disappeared. The relative collapse is a humble reminder that advances can be given back in a moment's notice when you least expect it, regardless of asset class, strategy, or cap.