I think it would be wise to note that if you have a short-term strong dollar view this update might best be ignored. If you think the buck can take a pullback, consider the following.
We noted recently the potential for a double top in the Russell 2000. Then the index went up and tested the highs again before reversing downward this week. Bear in mind that 3 tests of the highs could also be bullish, as the more times resistance is tested the weaker it tends to become. But yesterday’s downward reversal came of heavy relative volume (when viewing the Small Cap ETF, IWM). That gives the equation some bearish weight in my opinion.
Here is the index again along with its fading leadership ratio to SPY (orange) and the US dollar (green). Notice how RUT/SPY began moving higher in February while USD ground out a bottom into mid-April. RUT/SPY lead by about 1.5 months. Is it possible now that RUT/SPY has begun a down move while USD grinds out a top? RUT/SPY has been declining for a solid month now.
I added a Small Caps short (TZA) to the portfolio. I remind you that I do not tend to take positions as stand-alone trades but rather, as portfolio members. One day when the market view firms either bullish or bearish, I’ll be happy to lean more heavily. But for now I thought the above represents a good risk vs. reward in increasing the portfolio’s short positioning. The balance of my holdings are still long-biased, including gold stock positions.
Caveats/Risks:
- Both moving averages are rising strongly.
- The SMA 50 lay in wait as support.
- Our longer-term view of the USD is bullish. It may not pullback.
- Stop Loss would be a rise above yesterday’s high in the RUT, or at whatever point (personally) I might decide that the portfolio does not need this counterbalance.
A reminder that chart based NFTRH+ updates are technical trade setup ideas, which may not be revisited as the buy, sell, stop parameters are already noted. They are meant as a starting point for your further research if interested. I will not personally buy every item highlighted and will sometimes sell (ref. Trade Log) any item that I do buy below target (assuming I’ve not stopped out or sold for some other reason), which is something I often do as a trader. Also please be aware that I am not a fundamental stock analyst. Due diligence is your responsibility.
