Small Caps May be Breaking Out


Small caps just did something pretty rare since February’s market crash: They made a new high.

The iShares Russell 2000 ETF (IWM) rose 1.1 percent to $160.92 yesterday — slightly above its previous all-time high from January 24. The only other major index to hit a new peak after the winter selloff was the Nasdaq-100 in March. Meanwhile other benchmarks like the S&P 500, Dow Jones Industrial Average and Dow Jones Transport Average have struggled to go anywhere.

Trade wars and geopolitics are one common explanation. Investors have balked at blue-chips like Boeing (BA) or Caterpillar (CAT) as the White House and Beijing traded tariffs. Bigger companies also tend to benefit from a weaker U.S. dollar because they do more business overseas. That was great in 2017, when the greenback skidded steadily lower. But this year the trend has reversed as interest rates soar and German exporters cry “uncle.” Small caps on the other hand, tend to be more domestically focused.

Technically, IWM made higher lows along its 200-day moving average in February and April before bouncing at its faster-moving 50-day moving average this month. Chart watchers may consider that a sign it’s more bullish the S&P 500, which only recently broke above its 50-day moving average.

iShares Russell 2000 ETF (IWM), showing close at new high
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.