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Small caps break out signaling strength of the bull?

Small caps break out signaling strength of the bull?

I am sitting here in front of my screen. And I am looking at a fresh new 52-week high on the small cap Russell 2000 index. Which is a pattern that signals more upside.

When the Russell 2000 makes new highs that is a bullish sign for the stock market. Suggesting that it might head higher. And that is where we stand in early december of 2019.

The small cap Russell 2000 index closed on new highs this Monday, after building a longer base that began in early 2018. And as the picture shows the Russell has followed the Dow Jones transportation average very closely since then:

Small caps break out signaling strength of the bull
The Russell 2000 making new highs. Now I am just waiting for the Dow Jones Transportation average, here in blue, to trade into higher ground. – Chart from TradingView

The Russell 2000 making new highs. Now I am just waiting for the Dow Jones Transportation average, here in blue, to trade into higher ground. – Chart from TradingView

Ari Wald is the technical strategist at Oppenheimer and a CMT. He believes the breakout signals strength in global markets. “I think this is a market where global equities are breaking out across the board. It’s not just the U.S. large cap growth anymore. It’s U.S. broadly, and now small caps, a big breakout in the Russell 2000 today. You really have a market that is firing on all cylinders”, Ari Wald, told CNBC.

Confirming Dow theory

The bullish signal according to Dow Theory came earlier this year. Because both the Dow Jones Industrials and the Dow Jones transports made new highs. Confirming the strength of this market according to Dow theory. And now, with the small caps confirming that move, the market looks bullish.

Needs to hold

Small caps have been lagging the other averages. And that means that this might be a bullish sign since they are finally showing strength. But it needs to be a sustained rally to be a confirmed signal. So if we break down from here we could see more sideways trading or more downside.

Is this market going to explode upwards?

I have no idea. What I am saying is that the small cap index looks bullish. And that’s it.

Disclaimer: All information found on this site, ideas, opinions, predictions, commentaries are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. I will not and cannot be held accountable for any actions you take as a result of what you read in here. Use the information at your own risk. I am not your investment advisor. Consult a licensed financial advisor before making any investment decisions.

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