Over the past two weeks, the markets have put together a nice rally, seeing the Nasdaq Composite reach new all-time highs, and the S&P 500 test its all-time highs today. But one missing ingredient over the past few days has been the Russell 2000.
So why is this important? Typically small caps are a nice gauge of “risk-on” and represent high beta. So, while it’s not overly concerning, it is something to put on your radar. And today, with the S&P 500, Dow Jones Industrials, and Nasdaq all green, the Russell 2000 was down again (-0.54%).
Here’s a chart showing the divergence in performance over the past few days.
As we have often noted, market divergences should not be used in isolation and are simply one of many indicators to keep on your radar. In this case, the Russell 2000 is still a few percent under its June highs, so its worth putting on your radar. Resistance resides at the April highs, followed by the June all-time highs.
A push to new all-time highs would be a big hit to the bears thesis over the near-term. And it would provide much needed confirmation to the bulls that another leg higher is brewing.
Here’s a look at the how the Russell 2000 has performed relative to the S&P 500 during the bull market. As you can see, the RUT has been underperforming since early 2014. But the trend higher since the October lows is still in tact. And on a short-term basis, the RSI of the ratio is currently oversold – this suggests that the recent small caps underperformance may be nearing an end.
But will it be enough to push the index to new highs?
Thanks for reading.
Twitter:Â @andrewnyquist
The author does not have a position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
