If today’s gap up in the indices sticks, there is an important divergence going on that I want everyone to take notice of. The Russell as displayed below as the $IWM (Russell Index ETF), is surging higher to new all time highs. Monitoring the Russell as compared to the S&P and Dow Index is the easiest way among a handful of tools to monitor the market’s appetite for risk. The move today in the Russell speaks for itself. The Russell is up over 2.5% percent, as shown below.
In summary, the key take away is that while yes, market volatility has increased as of late. But if a short term/long term top was in the market, market participants would not be rushing out aggressively to take on risk. While I am not a hurry to buy anything this morning, I am sitting back and waiting for set ups to come to me. If you are looking to buy something, focus on what has not yet moved yet. Typically those are the securities that have the best day in the consolidation that usually follows a big day.