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Aggressive Small Cap Indices Break Out Again

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Both the Russell 2000 Index ($RUT) and S&P 600 Small Cap Index (SML) broke out to all-time highs last week as money continued to rotate towards aggressive small cap stocks and that should be seen as a bullish sign for equities.  In the case of the $RUT, a year long bullish continuation pattern - an inverse head & shoulders - finally resolved to the upside with a fresh target price of 1400 based on its measurement.  Heading into 2014, momentum began to slow for small cap stocks as a long-term negative divergence emerged in March 2014 on the weekly chart.  Many times that sets the stage for a selloff, or at least a long period of consolidation.  Consolidate is exactly what the Russell 2000 did.  Check out the chart:

While the S&P 500 was up nicely last week, it's still awaiting its next breakout.  Failure to break out, however, did not stop the S&P 600 Small Cap Index ($SML) from breaking out as the pattern here is quite similar to the Russell 2000 with the small cap area of the S&P surging to all-time highs.  Take a look at the SML:

Given the strength in small caps, it's very difficult to grow bearish equities at this time.

Happy trading!

Tom

 

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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