Quote Originally Posted by MTman View Post
Mike,
What are your thoughts on the performance of the Russell 2000? It is consolidating nicely and shows some strong weekly up spikes on big volume over the last few weeks/month. And yet, being in the latter cycle of the bull market, small caps are typically unfavorable to institutions due to lower liquidity and higher volatility.

Thanks,
Mark
Mark, The Russell has been going sideways for 10 months. It didn't get slammed yesterday like the NASDAQ as it remained above the 10-day moving average when the NASDAQ went below the 50-day. With the good AAPL earnings the NASDAQ situation may reverse. If you look at the last 3 weeks the Russell has closed in the upper half of its range. This is a positive sign. The one "but" is that it has done this before over the last 10 months.

I know of a study done by a friend who tracks every break out of every stock on the IBD50 list. This study goes back to April 2003 when it was the IBD100. Generally 50-70% of breakouts succeed over the bull market periods up until June 2014. Since July only 20% have succeeded. By success I mean that the breakout moves to 15% profit before it goes 5% negative. This analysis agrees with my own portfolio. I have not been able to make headway this year. 20% winning positions won't make money in the long term and may not lose money either.

When my own portfolio is not making headway there are two possible causes: I am wrong or the market is wrong. I was unaware of my friends analysis until yesterday, it has taken him years to do the analysis. Perhaps something fundamental is going on whereby high growth stocks (big earnings growth, big sales growth, big margins, large trading volume) are not being consistently bought by institutions. They aren't necessarily selling them but they aren't pushing them up either. Stocks like Clorox (CLX) a poster child for a defensive issue however is making new highs. This seeming rotation may indeed be institutional preparation for a significant under performing market going forward. It appears they are not preparing for a big high growth stock push.

In my own portfolio I decided to go to cash yesterday. I note that the late great trader Jessie Livermore said: "Drifting stocks cost money". My portfolio has been drifting on both the long and short side.