Those that view the message of the market on a daily basis are likely confused by trading noise. While trading noise contributes to the long-term trends, it does not define them. Human behavior tries to explain trading noise as a meaningful trend. This confuses the majority which, in turn, contributes to their role as bagholders of trend transitions.
ALIGNMENT (Price & Volume)
{{170|Russell 2000}'s (small caps) composite trend is consolidation (Down, Cons, Cons).
The primary trend has been consolidation, a misalignment between price and volume, since 7/1/19. Consolidation in the primary trend suggests one or all of the following: (1) illiquidity in the markets is growing. We know this as the Russell 2000 is the lowest rank in the Intermarket trends (Line 65 Matrix). The Nasdaq 100 is leading but the Dow Industrial is catching up fast. Rising liquidity sends the Dow Industrial up to the top and the Russell 2000 to the bottom. We're almost there. (2) The domestic economy is slowing. There's an old saying on Wall Street that when the soldiers (small caps) lead the rally, the economy and liquidity are good. When the generals (big-cap names) lead, it's the opposite. If the Russell 2000's primary trend enters downside alignment, disciplined traders should be concerned. They're likely concerned already if energy and participation are bearish. Let's look.
ENERGY (Diffusion Index)
Russell's DI & DI2 are -71% and 0%. This combination shows a bearish spike in energy (DI), but still relatively neutral (DI2). If the DI spike worsens or continues for several more weeks, DI2 will drop. That would be bad. Consolidation in the primary trend and DI spike to -71% places small caps on a watch for short nibble. This is significant for US stock bulls as an evolution of the short trade could be painful for the perpetual cheerleaders.
Participation (ProIndex)
I would love to say that the ProIndex invalids the developing bearish stance, but it really doesn't. The ProIndex stands on the verge of breaking below the recent swing. If it does, the bulls will be depending on the public (retail money) to hold up the rally. The disciplined trader never follows/depends on the public. The public is also known as the weak handed players on Wall Street.
The Russell 2000 is an important sector to watch in October. While watching the progression of a trade setup (Energy Build) is not the type of information that motives most traders, it's the right play. Patience and good information setup great trades.