As I mentioned below, I'm taking an in-depth look at all the averages today to see if we really are in a bull market or whether this is a bear market rally. Below are overviews of the SPYs and the QQQQs. Below is a look at the IWMs, or the Russell 2000. These companies require overall GDP growth to move higher. Therefore this index is a good proxy for investor's and trader's risk appetites.
The index did remarkably well for an extended period of time, especially considering the economic backdrop started to falter in the middle of 2007. But it wasn't until the end of the third quarter of 2008 that the index really took it on the chin. From top to bottom, the IWMs have lost about 46%. A large chunk of that occurred in the last half of last year.
Despite the recent rally, the MACD is in overbought territory as is
the RSI,
The short term (6 month chart) shows some current action that is strong.
-- Prices have been rallying since the beginning of June
-- The 10 and 20 day SMA are moving higher
-- The 10 and 20 day crossed over the 50 day SMA
-- Prices are above all the SMAs
-- Prices have moved through the downward sloping trend line that connects several recent lows.
-- Prices are just shy of another downward sloping trend line.
My primary concern is the overbought condition of the MACD and RSI. However, as I mentioned below, RSIs can remain overbought for sometime. But the MACD is especially disconcerting as it is usually a pretty reliable indicator of momentum. In addition, the market is pricing in a big economic turnaround and I'm not sure that's in the card right now. While I do think the economy will rebound somewhere between the 4th quarter of this year and the end of the 2nd quarter next year, that could still be a year+ away right now.
