Bull Warrior Stocks

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Time to worry? Russell 2000 hits 'death cross'


Robert Hum |
CNBC.com


The Russell 2000 has been diverging from the broader market over the last several weeks, and now technicians point out it has flashed a bearish signal. For the first time in more than two years, the small-cap index has hit a so-called death cross.

A death cross occurs when a nearer-term 50-day moving average falls below a longer-term, 200-day moving average. Technicians argue that a death cross can be a bearish sign

While traders have already been quite bearish on the Russell 2000 so far this quarter, no other major U.S. index is near its death cross.

The small-cap index has far underperformed the broader markets during the quarter, falling 5.3 percent versus the S&P 500 rising 1.7 percent and the Nasdaq composite climbing 2.5 percent over the last 12 weeks.

More evidence of the recent weakness in small-cap stocks: the Russell 2000 is currently about 7 percent below its all-time high set at the start of the quarter on July 1, while both the Dow and S&P 500 are just off their own record levels hit last week.

Hitting a death cross could potentially propel the Russell 2000 lower and push the index closer to correction territory, a significant level watched by traders that is 10 percent below this index's all-time high.

The last time the Russell 2000 hit a death cross was in July 2012, but no sell-off followed as the index quickly bounced off that level and continued its uptrend.




A year before that death cross, though, in August 2011, the index hit a death cross and trended lower in the short term. However, that dip was headline-driven, spurred by Standard & Poor's stripping the U.S. of its AAA credit rating.




Death crosses circled.)