07 May 2014

Russell 2000 Small Caps and the Wilshire 5000: In a Stall, Or the Pause That Refreshes the Bull

Bespoke has a recent article pointing out some weakness in the small caps.

It is interesting to see that the broad lower end of the equity market is stalling here, with a negative return year to date. This is what we see in the Russell 2000 small caps index. It has been flirting with this support level for some time, and is testing its 200 DMA once again.

This *could* be distribution, or profit-taking if you will, but absent determined selling on volume, the markets can continue to drift with an upward bias for some time, given the Fed's bubble of liquidity going right to the banks, and thereby to Wall Street.

And we get a broader perspective from the Wilshire 5000, which is effectively flat for the year, and is oscillating round its 50 DMA.

The SP 500 is the locus of market support, some might say propping, and if there is weakness it may first appear in sector specific areas and the broader markets.

But not so yet, even though we are seeing weakness, and the volumes are thin, especially if one discounts HFT antics. 

The market is vulnerable to an exogenous shock, lacking firm underpinnings from the real economy, but absent a shock the vicious cycle of wealth extraction through the printing of money and paper asset inflation seems to be operating quite efficiently for the gangster class.
"We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."

Louis D. Brandeis
And this aggregation of power and wealth will likely continue until the next financial crisis.  Wealth and power are being steadily transferred, as a matter of de facto policy, from the many to a select few in the rise of a new, transnational oligarchy.

This is the Anglo-American way, which has been widely adopted both at home and abroad, through manipulation, intrusion, intimidation, and intervention.