One of the ongoing attempts to justify a bottom to the market selling rout and preempt a bounce in stocks, at least one that is more than just the Fed's direct and indirect intervention in the capital markets, has been the pundits' repeated highlighting that the Russell has been rising all throughout the past few days' collapse, indeed during the longest, 6-day Dow Jones losing streak in over a year. The conventional thinking here goes that the small caps always presage a large cap inflection point, and this is precisely what the Russell ramp in the past few days has been heralding. In theory, this is absolutely correct, In practice, it is 100% wrong.
For those curious why the Russell 2000 has completely ignored this week's broader market rout and is in fact higher now than last Friday, the answer comes from a recent technical note from Bank of America which says that as of the first week of the month, the "Russell net short positioning largest since 2008 after fifth consecutive week of selling."
More:
Large specs sold Russell for a fourth week to increase net short position to a new five year high.
And:
Large speculators increased Russell 2000 net shorts to -$8.0bn from -$7.9bn notional.
Bottoming. Russell 2000 survives a probe below BIG support at 1082 last week. Regaining the August low of 1107 would help confirm a low in the Russell 2000 and the potential for a seasonal rally. Support is 1082-1075 (Feb/May lows, down channel / measured move from July high). Resistances: 1107 (August low), 1144-1151 (50- and 200-day MAs), and 1184 to 1214 (range highs)
Still confused why the Russell 2000, which until a week ago was the most shorted in 5 years, is rallying? Then call the margin clerks who have unleashed upon their over-leveraged hedge fund clients the most aggressive forced buy-in of RUT stocks in years.
