I guess I have to try to work some sort of St. Patrick’s Day theme in here since the Russell 1000 (RUI) went from red to green on the year last week, but I’m too worn out to come up with anything clever. Also, it is difficult to get too excited over an index that is up 0.05% for the year. Since I’m trying to be funny, here’s a lame attempt, the Russell 2000 (RUT) remains in a rut for 2016, even after gaining 1.3% last week the small cap benchmark is still 3% lower for 2016.
The chart below does not bode well for small cap stocks or investor’s attitudes about the US economy. I heard two arguments about why the Fed did what they did. One was that we are now playing nice with the rest of the world instead of hiking rates while everyone else is lowering them. The second thought was the FOMC knows something we don’t and the US economic growth may be at risk. Seeing the CBOE Russell 2000 Volatility Index (RVX) at a 30% premium to VIX makes me think some people are buying into the second theory.
One trader stepped up on Friday with an outlook that involves RUT not dropping more than 1.8% between now and April Fool’s Day. With RUT at 1095.72 a trader sold 200 RUT Apr 1st 1075 Puts at 6.20 and purchased 200 RUT Apr 1st 1025 Puts for 1.20 taking in a net credit of 5.00. Their hope is that any weakness in RUT doesn’t take the small cap index down to the 1075 level, especially on the close April 1st. Not exactly a bullish outlook, but I’m sure they’d be happy if RUT continued higher from current levels.