Chart Talk {08.24.17-Canary In A Coal Mine?}

So while other indices are close to new highs the iShares Russell 2000 ETF {symbol IWM} is down about 6% as of yesterday's close.  Investors watch this index because it represents small-cap stocks that typically do most of their business in the US, thus some see it as a gauge of economic health.  Some also view it as a tell for possible future market direction as often the Russell starts to weaken before the rest of the market.

If that's the case and if the Russell is currently acting as a canary in the coal mine then it's not saying anything great.  It has totally failed to participate in this year's rally as it's mostly traded in the range I've highlighted on the chart above.  It's also currently down about 6% for the year as of this writing.  Also a bit worrisome is that it's currently trading below it's 150 day moving average.  Trading below that average often is indicative of a change in trend.

Now in today's more globally integrated economy perhaps the Russell is less of a tell than it once was.  It also seems to be rallying this week as other indices have been weak.  Finally there's a theory going around that the Russell is a proxy for tax reform and it's fortunes right now are tied more to that possibility than its relationship to the overall economy.  However,  it is something to watch and one more worrisome tally to currently mark as we go forward into the fall.

Next week will be slow in the markets.  It's the last rose of summer.  Wall Streeters will be doing one final fling at the beach.  It will therefore be a good time to try and tie together the pieces of the charts we've shown this week into something more comprehensive in the days before Labor Day.  I'll be taking some time off next week as well so look for that post about mid-week.  Then we'll be back after Labor Day with a more normal schedule.

Chart is from Tradingview.com.  The annotations are mine.

*Long a small legacy position of IWM in certain client accounts and in a few family accounts.