Nasdaq Gains, Russell Outperforms As AMC & GME Go Parabolic

The stock market advanced on Wednesday with all major US indices finishing in the green. The S&P 500 rose 0.2% though the Dow Jones closed practically flat. Nasdaq price action ended 0.6% higher. Gains were led by mid-cap stocks, however, with the Russell 2000 climbing nearly 2% on the session. This propelled the Russell 2000 back above its 50-day simple moving average.


Chart of Russell 2000 to Nasdaq 100 Ratio

Chart by @RichDvorakFX created using TradingView

That said, the latest bid beneath and outperformance of mid-cap stocks corresponded with a noteworthy upswing in the Russell 2000 to Nasdaq 100 ratio. Watching the RUT to NDX ratio could be worthwhile over upcoming trading sessions to see if the ‘reflation theme’ starts to gain traction again. Not to mention, we saw the yield on ten-year Treasury bonds rise for the first time in five sessions today. I would also like to point out that the Russell to Nasdaq ratio peaked this year when ten-year Treasury yields topped out around 1.75% mid-March.

Even as the Fed taper debate intensifies among market participants, Federal Reserve officials have resolutely deemed inflationary pressures as ‘largely transitory’ and conveyed their desire to keep monetary policy accommodative. This likely reflects an appetite for letting the economy – and stock market – run hot. Such stands to be supportive of the Russell 2000 and mid-cap stocks in particular as this segment of the market is arguably more prone to a Fed policy mistake that prematurely ends the economic recovery.


AMC Stock Price Chart GME GameStop AMC Entertainment Holdings Squeeze

Chart by @RichDvorakFX created using TradingView

To that end, equity investors are piling into highly volatile retail favorites again like AMC Entertainment Holdings (AMC) and GameStop (GME). The two ‘meme stocks’ are back in the limelight amid resurgent search interest, spikes in trading volume, and parabolic gains. I even flagged GameStop two weeks ago as it looked primed to break out above a descending trendline. Taking a look ‘under the hood’ of recent AMC and GME stock price action, though, indicates these FinTwit favorites are ballooning on the back of another squeeze with AMC and GME short interest remaining high and recent influxes of call option buying placing upward pressure on Gamma.

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