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Robert,
> I was told by a guy who said the Russell leads the Dow and S&P. He
> said he has been making money with options on stocks for a number of
> years watching this relationship.
Normally you have got the following effect : At the beginning of the
large move up (I am talking about months and years here) people buy
blue chips. At a later stage these get expensive and all the players
look for stocks which have been left behind in their P/E valuations.
On the move down exactly the opposite happens: Last in / first out ->
flight to quality.
This is the explanation why in absolute percentage terms the moves of
the broad based indices will be larger at the end of the up-turn and
the beginning of the down-turn.
Gerrit
> Since late July, the Russell 2000 has moved by more than 1% on 10
> out of 13 trading days, and in the past nine sessions alone, the
> small-stock index has moved more on a percentage basis than either
> the DJ or the S&P 500 on seven occasions, the Wall Street Journal
> will say today. It will also note that "the Russell 2000 index of
> small-company stocks rode up 7.33, or 1.81%, to 411.29, but the
> barometer remains the only major stock-market index that is in
> negative territory for the year, down about 6%. The Nasdaq Composite
> Index jumped 37.08, or 2.04%, to 1855.12 .... in the past 30 trading
> days the Russell 2000 has moved, on average, 1.3% per day, up from a
> 600-day average of 0.61%, according to data compiled by Schroder &
> Co. That compares with an average daily move of 1.2% in the S&P
> index of 500 blue-chip stocks, which has a 600-day average of 0.7%."
> The standard deviation of the Russell 2000 hit a six-year high this
> past week, on an annualized basis, says ITG Inc., a New York
> brokerage firm. The Russell's volatility also moved higher than the
> S&P 500's for the first time since September 1996. Part of it has to
> do with uncertainty about earnings. According to the WSJ,in the
> second quarter, the Russell 2000's average earnings surprise was 3%
> below expectations. whereas First Call reports stocks in the
> Standard & Poor's 500-stock index reported earnings 1.8% above
> expectations.
>
>
> I was told by a guy who said the Russell leads the Dow and S&P. He
> said he has been making money with options on stocks for a number of
> years watching this relationship. He sent the above post where he
> got it I have no clue but interesting theory.
>
> Robert
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Gerrit Jacobsen
http://www.tickscape.com
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