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Midweek Market Trend for March 7, 2018:

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Volatility continues to be the watchword for the markets. After going more than 400 days without a major cluster of volatility, stocks have moved at least 1% on most of the past 30 days. Interestingly, after a spike on the VIX on March 2nd (Figure 1)(A), the so called “fear gauge” has dropped back down below 20, a signal for some traders that the worst of the pullback might be over, although I would prefer to see it drop below its previous low of 16 (Figure 1)(B).

Figure 1:

LeeBlog 3.6.18 Fig 1

Source: StreetSmart Edge®

In spite of Monday’s rally, the S&P 500 (SPX) has as of this writing (March 6 at 2 PM Eastern) not yet been able to power back above its 50 day moving average (Figure 2). The current rally, which started on March 2nd, could gain some momentum if the SPX can regain that key level.

Figure 2:

LeeBlog 3.6.18 Fig 2

Source: StreetSmart Edge®

Things look better for the NASDAQ (COMPX). It has shown consistent relative strength versus the SPX (Figure 3)(A) and has managed to stay above its 50 day moving average.

Figure 3:

LeeBlog 3.6.18 Fig 3

Source: StreetSmart Edge®

As I mentioned last week, one sore spot for market has been the relatively weaker action of the Russell 2000 (RUT). However, over the last few days, the Russell has been acting better as its relative strength line has just broken through a multi-month downtrend line (Figure 4)(A). And even better, as of March 6 at 1:45PM Eastern, the RIUT has regained its 50 day moving average (Figure 4)(B).

Figure 4:

LeeBlog 3.6.18 Fig 4

Source: StreetSmart Edge®

So will the Russell’s recent outperformance continue? To answer that, keep your eye on the dollar. If the dollar has, in fact, bottomed in the intermediate term (Figure 5), the RUT could continue to trade well. A stronger dollar puts pressure on the earnings of the large cap multinational companies and could cause a rotation into the smaller, more domestically oriented companies in the RUT.

Figure 5:

LeeBlog 3.6.18 Fig 5

Source: StreetSmart Edge®

Finally, the seasonals could be in play for the RUT as well. In the current bull market, March has been a strong month for small cap stocks (Figure 6).

Figure 6:

LeeBlog 3.6.18 Fig 6

Source: ®

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