From the Trading Desk

Friday Morning Coffee: Terrible Close and Russell Rebalance

Aside from yesterday’s terrible close for the stock market in general the Russell family of indexes are about to undergo their yearly rebalance. Every year in June the Russell Rebalance is a large event for money managers who benchmark their portfolios against any of the indexes Russell produces. While for us the only impact will be price movement and the huge spike in volume it will cause some disruptions at the close of today’s session. Sitting just above its 50-day average the Russell 2000 has been a laggard, but is able to begin a powerful rally. Patience will be key and following price action will be even more important as a rally may never come to fruition. We continue to remain in this uptrend, but rather than a high-flying rally we have a slow-moving market. Steady as she goes.

Sentiment continues to show those in the AAII survey remain Neutral on the market over the next 6 months. Perhaps most have given up, but the AAII survey has consistently shown Bulls and Bears alike take a backseat to those who are Neutral. NAAIM active manager exposure index continues to remain around 90%. Active managers continue to maintain a high level of equity exposure to the long side. There have been very few bearish bets as this uptrend has beaten down those who look to trade a market turn. Since the election we have not seen any resemblance of a correction. Any bit of selling is met with buying only to see the market hit new all-time highs. The NASDAQ 100 has been the leading index and perhaps now it is the Russell 2000 turn.

The focus now should be your stocks. While the NASDAQ has 5 days of distribution the S&P 500 has only 3 and for the most part we have broad leadership. Until we see further distribution and leadership breaking down it would certainly be cause for extreme caution. Right now, we will continue to monitor our stocks and adjust our stops accordingly.

Go out and enjoy the weekend! We hope you have a great Friday and enjoy the end-of-day fireworks with the Russell Rebalance.

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