RUSSELL 2000

Wall Street considers the Russell 2000 as the best gauge of interest in small stocks. The Russell was absolutely annihilated in the ‘08;’09 global meltdown [see chart] as the smaller companies tend to take the brunt of the selling sooner. These are considered the high “BETA” stocks.

The term “BETA” means: a measure of volatility that wheels off the S&P 500. The S&P 500 has a BETA of 1. That’s the benchmark. A stock with a BETA of 2 would simply be twice as volatile as the S&P 500. Hence the term “High Beta” stock. Many of the stocks in the Russell 2000 tend to have betas of 3 to 10. These are the movers, both up and down.

In Q2 and Q3 of ‘09, small stocks were all the rage. In Q4 of ‘09, the larger caps seemed to get the majority of market interest.

Since the first of this year, those inhabitants of the Russell 2000 have broken out of the ‘09 resistance range, and appear to be the area of greatest interest in the market.

The Russell 2000 banged up against 625 twice in Q4′09- September and October. The third try was the charm. A clean break over 627 in January, which makes it the best performing major index so far in 2010. The latest move began on November 30, as it ran from 567 up to 649 on January 19, a 13% increase.

However, having sold off the past 7 days from a 2010 high of 649 the Russell 2000 could want to go back and test the 600 level [lower channel RED line] and perhaps the ever important 200 day moving average [solid BLUE line] at 575.