Thread by @vigtecofficial

Why is the Russell 2000 getting boot kicked this week?

Well an index is a composition of stocks. Sounds like a dumb answer but let's dig in..

2/ The composition of stocks inside are now eating the index. The #momostock trade has fueled it for months now. However, if you look at our Live Charts flow measurements (volume and money), you can see that price has been rising since December as volume and flow ...

3/ have been collapsing. This is because of the components in the index overwhelming the entire order flow. $IWM has benefited from names like $FCEL and $PENN and $PLUG and $GME.

4/ Now it’s being eaten by them. Is this a correction? Or are these signs of the end of an epic bull run in $IWM? It all depends on the components of the index. Where will the leadership come from going forward?

5/ We’ve talked about passive indexation being something that’s self-reinforcing for a long time…meaning that as a stock gains market cap, the #ETFs will indiscriminately buy more of it. This led to an upwards feedback loop in these mo-mo names on the index. Now with these...

6/ ...names being the heaviest weighted in the index falling apart, the index itself is falling apart. You can thank passive indexation for this, which was fueled by call buying on the way up…

7/ ...and is being dragged down by indexing rules on the way down. What happens next for the #Russell2000? If these names don’t turn around soon, then they’ll continue to drag on the index…

8/...and if the index leaders that are left roll over, then you’ll see the Doom Loop unfold as good companies are indiscriminately sold as quickly as the overvalued growth stocks have been.

9/ Stay tuned…it’s too soon to determine if the bulls have lost the ball here…but they’re starting to turn it over no doubt…and volatility is starting to pick up. Keep an eye on the value stocks in the index for more clues and watch volatility...

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