Friday (6-24-05) was component realignment day for the Russell 1000 (RUI), Russell 2000 (RUT), and Russell 3000 (RUA) indices. The annual June Russell indice's realignment often results in volume extremes, particularly the RUT near the close. Friday's action in RUT was no exception to the realignment norm.
Thus far, I haven't been able to identify the new RUT component additions since March 31, 2005, but up until the end of March 2005, 119 IPOs have been added to the RUT component list. Take a look at Friday's closing breadth numbers of those 119 RUT component additions:
Up Volume: 65,392,000
Down Volume: 11,401,000
Unchanged Volume: 1,429,000
Compare the above strength in the new RUT component additions, to the Friday 6-24-05 breadth of RUT components in place July 1, 2004:
Up Volume: 509,655,000
Down Volume: 903,291,000
Unchanged Volume: 36,027,000
Friday's "original component" RUT volume was extremely heavy, suggesting robust institutional activity in all RUT components, but the price appreciation strength took place in the new additions to the RUT index.
Theoretically, if one were to purchase an equally weighted position in each of the RUT component additions at Thursday's close (6-23-05) and sold that same basket of new RUT additions at Friday's close (6-24-05), your profit before transaction costs would have been 2.2%. Not a bad return for one day considering yesterday's price debacle in all other indices.
Something to think about for next year's RUT realignment? I noticed many of the new RUT components gave back some of their gains later in after hours trading (primarily after 3:15 EDT), but selling a long position in this basket of stocks into the institutional buying frenzy near the close could potentially provide a pretty good day's wages.