Small Caps Surge and Reflect Rotation into Cheaper Parts of the Market


Editor's Note: This article was originally published in John Murphy's Market Message on Wednesday, September 11th at 5:14pm ET.

Smaller stocks were the stars of today's stock action. Previous messages have noted signs of improvement in the group which has lagged behind large cap stocks since last September. The daily bars in Chart 6 show the Russell 2000 Small Cap Index gapping sharply higher today. The RUT now appears headed for a challenge of its falling resistance line drawn over its May/July peaks. The RUT/SPX relative strength ratio (solid line) has risen above a falling trendline which signals the end of six months of underperformance. That's part of the recent rotation into cheaper parts of the market that's taken place this month, and is helping to broaden out the stock rally. New buying in smaller stocks is a good sign for them; and for the rest of the market as well.

Chart 6

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