Analysis and Opinion »

S&P Hits All-time High but Small caps continue to Lag

David Becker
Share on StockTwits
Published on
www.iforex.com
S&P Hits All-time High but Small caps continue to Lag

A strong rebound on Friday helped U.S. large cap stock indexes end the week higher. The rally in the broader large indices had occurred without small cap stock which experienced a much stronger rally in 2013. The question for investors is how long can this continue, and will small cap stock eventually pul down their larger cap relatives.

The week’s strongest gainers were the Dow Industrials which were up nearly 1%. The Dow Industrials ended the week above 17,000 and well above initial chart support near 16800 and their 50-day moving average. The Dow also remains above its January high near 16,600. Friday’s up volume was slightly less than Thursday’s down volume, but the week’s volume flow was generally positive. The same is true for the Nasdaq and S&P 500. The Nasdaq Composite Index bounced off initial chart support at 4351. The S&P 500 stayed above initial chart support at 1952.

One of the nagging concerns about the current market rally is the lack of participation by small cap stocks. This week’s action was another example of that troubling trend. The Russell 2000 Small Cap Index lost -0.72% this week. In a strong uptrend, small caps should be rising with large caps. The RUTSPX ratio continues to fall. The 10% underperformance by the RUT is the worst since 2011 when the market was in the midst a major downside correction. The good news is that the RUT has not yet suffered any serious chart damage.

The RUT may also be finding support at its 62% Fibonnaci retracement level measured from its May low to its July peak. The RUT would probably have to fall below its May low to signal a serious problem with the rest of the stock market. Janet Yellen’s comment at midweek that small caps were “stretched” contributed to some of this week’s selling.

Share on StockTwits