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Increase in Volatility On The Russell 2000

 January 10, 2011 02:44 PM

The past week has been almost flat. All the weekly gain could be summarized as a result of the strong swing up at the market open on Monday January 3, 2011

By the end of the week we may say the volatility is growing which is usually a bearish sign. US Dollar index is moving up steadily and it already broke December 22's high and it is close to the November 30's high - this is bearish sign for stock market as well. As a result of sideway trading, many technical indicators started to generate bearish signals as well.

The only thing that play on the hand of bulls is that during Friday's decline the indexes run into strong bearish volume after which they recovered. This could be explained as an action of bullish traders who started to buy as the market dropped and market cannot go into a correction when this happens. The market goes into correction when during a decline, worried traders start to sell by pushing market even lower and so far we did not see it. It does not mean that we may not face a correction, yet, I would wait to see when the bearish volume is ignored - or in other words when drop in price does not attract to buy but pushes to sell.

While volatility is rising, it is still at very low levels on the Nasdaq 100, S&P 500 and DJI. However, the volatility on the Russell 2000 index has raised to the level from which it moved into a correction in January 2010 and in May 2010. If it is too early to call volatility bearish on the S&P 500, Nasdaq 100 and DJI indexes, on the Russell 2000 index the volatility is strong enough to be called bearish.

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