Small-caps Lead the Way and Outperform Large-caps


The Russell 2000 ($RUT) is leading the market higher with a breakout on July 8th and a series of 52-week highs the last two weeks. This key small-cap index was one of the first of the major indices to break above its May high. Even though the index is looking a little overbought after a 10+ percent move the last 18 days, the breakout is clearly holding and bullish until proven otherwise. Should we see a pullback, broken resistance in the 1000 area turns into the first support zone to watch. The late June low marks long-term support. The indicator window shows the price relative ($RUT:$OEX ratio) moving to a new high as well. This means the Russell 2000 (small-caps) is outperforming the S&P 100 (large-caps). Relative strength in small-caps is positive for the market overall because smaller companies are more sensitive to changes in the economy. In addition, smaller companies tend to be more domestically oriented and relative strength bodes well for the US economic outlook.

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Good trading and good weekend!
--Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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