On Friday, I wrote here about the Dow Jones Industrials Average, how that venerable index could get back above 26,000, and how we need to stay above there for the long bull market to leg-up even more.
But I warned we weren’t quite in leg-up mode, and that the Nasdaq Composite, and, even more importantly, the Russell 2000 weren’t in quite as good shape as the Dow.
Indexes and Investors Reaching Only Half Their Potential Profits
Yesterday morning, markets rallied on momentum buying fueled by President Trump acknowledging Mexico’s actions on migration flows were enough to halt tariffs being readied by the Administration.
Markets also saw buying on news out of China that implied presidents Xi Jinping and Trump would likely have a sidebar dinner amidst G20 meetings in Osaka, Japan, June 28 and 29.
But none of the big indexes closed on or even near their intraday highs yesterday.
The Dow, after being up 226 points or 0.8%, ended up 78.74 points or 0.3%, at 22,062.68, with less than half the gain it raced to in the morning.
The Nasdaq Composite, after being up a whopping 155.34 points or 2%, ended up 81.06 points or 1.05%, at 7,823.16, just about half off its intraday high gains.
The Russell 2000, after being up 21.23 points or 1.4%, ended up 8.61 points or 0.57%, at 1,523.01, also up about half of where it had gotten earlier in the day.
I was right on Friday about the Dow. I’d said it would get above the psychologically important 26,000 level with some follow-through momentum buying. And, sure enough, we ended yesterday above that level.
The Industrials are 889 points or 3.4% from their record high of 26,951.
Staying near, but better by far, above the 26,000 level is important for market psychology.
Above 26,000 makes the ascent to new highs look doable. That’s why traders are closely watching the 26″handle.”
If the Dow can’t hold here and slips back to test the 25,000 support level, there’s going to be a lot of hand wringing and maybe a lot of profit-taking. If the Dow drops to test the 24,000 level, traders and investors will freak out if we trade anywhere with a 23 handle.
The Nasdaq Composite, the tech sector’s bellwether, at 7,823 is only 353 points or 4.5% from its all-time highs of 8,176.
That’s a little more than the Dow’s distance from its highs and more worrisome for investors.
That’s because tech stocks have been powering the market higher since the bull market began in 2009.
If tech falters and the Nasdaq can’t hold important support, trading sentiment could change on account of”growth stocks” not growing and no longer driving all equity benchmarks higher.
Important support for the Nasdaq is right around 7,275. That’s a”neckline” level below which will mean the index can drop quickly to 7,000.
Should the Nasdaq fail at 7,000, it could drop to test its 52-week low at 6,190.
Then there’s the Russell 2000, the small capitalization company index that represents mostly U.S. domestic companies.
If the Russell’s not doing well, it is more an indication of what’s happening in the U.S. economy and what investors are thinking about more”speculative,” more volatile smaller cap stocks.
And, it’s not good.
The Russell 2000 at 1,523.07 is 219 points or just over 14% from its all-time high of 1,742.08. That’s a big hill to climb, and it could be indicative of recession fears.
While the other benchmarks got hit this past May and hit hard from October to December last year, the Russell’s had the worst. It dropped more than 27% when the other indexes lost barely 20% or a good bit less.
And the Russell 2000, after rallying 20.8% off its lows, is still a long, long way from making up all its losses.
The Russell 2000’s strong support is now at 1,450, about 73 points or 4.8% below where the index closed Monday. Breaking that support would mean small companies in the U.S. are suffering and the economy is probably losing steam.
And while we certainly don’t want the economy to lose steam completely nor do we want to think about losing the money we just built back up from the 2008 financial crisis, the potential end of the bull market does not mean that that’s where the money ends, too.
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