Futures have caught a bid this morning following overnight strength in Asia and also in Europe this morning. The just-released ADP report didn’t do anything to alter that positive mood either, as the headline report came in modestly weaker than expected (103K vs 128K). Non-farm productivity and Unit Labor Costs are just hitting the tape as we type this. It looks like Productivity was higher than expected (5.2% vs 4.9% estimate) and the best since Q3 2020 while Unit Labor Costs fell more than expected (-1.2 vs -0.9%).

Outside of equities, mortgage applications were up for the fifth week in a row, gold is slightly higher, crude oil is slightly lower, bitcoin is above $44K, and Treasury yields have a positive bias with the largest moves at the shorter end of the curve.

After a two-day rally north of 4%, the Russell 2000 gave back about 1.4% on Tuesday but still managed to close above both its 50 and 200-day moving averages for the third day in a row – something we haven’t been able to say since early August.

Whenever a major equity index trades at ‘extreme’ overbought or oversold levels (two or more standard deviations above or below the 50-DMA), it tends to be a sign of overwhelming bullishness or bearishness in the market. These types of readings are mutually exclusive and rarely occur close to each other. The last six weeks for the Russell 2000 have been an exception to that norm. As shown in the trading range chart below, after closing at extreme oversold levels on 10/27, the Russell surged over the next five weeks and closed at extreme overbought levels last Friday (12/1). With just 24 trading days separating the most recent extreme oversold reading from the first extreme overbought reading, it was the quickest that the Russell shifted between the two ranges since June 2021.

In the Russell 2000’s history since 1978, there have only been 16 other times that it went from the oversold extreme to the overbought extreme in 30 trading days or less, and in today’s full post for subscribers, we provided an analysis of the index’s performance following these prior periods. 

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