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“Learn to deal with the valleys and the hills will take care of themselves.” – Count Basie

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After a rough night in Asia as issues in China continue to weigh on growth prospects for the region (more on this in page five of today’s Morning Lineup), European stocks pivoted right at the opening bell and are now firmly in positive territory to start the week.  US futures are following the European lead and currently point to a 0.5% gain at the opening bell.  While the S&P 500 was down on Friday ending what was its third negative week in a row, we would note that stocks pretty much opened at their lows of the day and drifted higher throughout the trading session.

For all the drama in markets on a day-to-day basis, the moves in the small-cap Russell 2000, often abbreviated as the ‘RUT’, have primarily been noise as the index has been stuck in a trading range for the last year.  The ‘valleys’ of each sell-off have found support right around the pre-COVID highs in the 1,650/1,700 range multiple times since last summer, but each ‘hill’ has run out of steam right around 2,000.  After the latest rally that began to take hold in late May petered out at the end of July, the Russell has pulled back just over 7% and finds itself smack dab in the middle of the 12-month range.

Looking at the Russell on a shorter-term basis, the pullback off the latest failed rally has been relatively swift, but one encouraging aspect so far has been that Friday’s 1.5% rebound off the intraday low occurred right around the 50-day moving average and at support from the uptrend off the early May low. Let’s see if that bounce can hold in the days ahead and mark a higher valley for small caps and ultimately break the small cap index out of its rut.

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