Although the MCOs for many of the indices heavily loaded with large cap stocks have been tame over the past week or so, there is some apparent accumulation underway in the small cap universe as measured by the action in the Russell Small Cap index (RUT) and the Russell MicroCap index (ETF symbol IWC). Most are aware of RUT, but for those interested in the makeup of the Russell MicroCap index, additional info can be found at this link:
The MicroCap and RUT MCOs have been suggesting renewed liquidity interest in these broad based groups of the smallest cap stocks, a good sign for the bulls when enough liquidity is available to find its way into this group.
The RUT AD MCO exhibited a classic relationship with price since mid-May, 2006. The RUT AD MCO posted a negative extreme, which is almost always followed by lower price lows, which occurred. Then, in late June, the RUT AD MCO achieved a positive extreme, but failed to carve more than a simple structure above its zero line... suggesting more work was needed in the bottoming formation process.
Now the RUT AD has carved out a pattern of higher lows/higher highs, constructive action for the intermediate term. Currently at +73, the RUT AD MCO would need another eight points to exceed its late June/early July thrust to +80.
The RUT $ weighted UD volume MCO is forming a similar higher high/higher low pattern, but is still 27 points shy of its astronomical early July posting of +97.
With these encouraging MCO patterns, can RUT price now follow through with a flag breakout?
A testimonial to the notion of strong liquidity returning to the marketplace is the action of the Russell MicroCap MCOs. The MicroCap AD MCO has posted its highest reading in the couple of years of data I have been able to derive for this index's components, and is constructing a very positive pattern.
The MicroCap $ weighted UD ($UD) MCO pattern is exhibiting the same characteristics as the MicroCap AD MCO. Note the MicroCap index price has already broken to upside from its multi-week controlling flag pattern.
Near term consolidation would be no surprise now, but it appears life is coming back to the small caps, and a MCO initiation thrust has likely occurred in the smallest cap (MicroCap) universe, which should lead to much higher prices going forward.