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Divergence Between Stock Market Indexes: What’s next for Stocks

Stock-Markets / Stock Markets 2018 Oct 04, 2018 - 02:11 PM GMT

By: Troy_Bombardia

Stock-Markets

Small cap stocks have significantly underperformed large cap stocks recently.

Yesterday, I demonstrated that this divergence tells you that the bull market’s top is probably 1 year away.

However, this divergence typically means that the bull market’s rally still has some room left (e.g. approximately 6-12 months). As we all know, the stock market can go up a lot during the final 6-12 months of its bull market.


These 2 charts demonstrate the Russell 2000’s divergence vs. the Dow over the past few days.

We can look at this divergence from various angles.

The Dow has gone up 2 days in a row to an all-time high while the Russell fell 2 days in a row. Historically, the U.S. stock market’s 2-6 month forward returns have been bullish.

The S&P is now within 0.4% of its all-time high while the Russell is >4.5% below its all-time high. Historically, the U.S. stock market’s 6-12 month forward returns have been bullish.

And lastly, the Dow has gone up 4 days in a row while the Russell has fallen 3 out of the past 4 days. Once again, the U.S. stock market’s 6-12 month forward returns have been bullish.

Conclusion

Lately, our market studies have been a little more mixed than during the first 8 months of this year. We have some bullish studies and some bearish studies for the U.S. stock market.

But the overarching theme remains the same:

Bull market rally into 2019, and a major top somewhere in mid-2019. This is similar to projections from the Medium-Long Term Model and the Long Term Risk Model.

Click here for more market studies

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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