Small-Cap Stocks Break Out On A Relative Basis

We’ve seen some interesting developments out of Small-Cap stocks over the last week. On Thursday we mentioned that the S&P Small-Cap 600 Index had closed at all-time highs, along with the S&P Mid-Cap 400. This is definitely a time where we’d expect the little guys to outperform, as the January Effect is in session. As we’ve discussed, there is the tendency for small-caps to outperform large-caps towards the end of the year and beginning of the next. So it should come as no surprise that the Russell2000 Small-Cap Index ($RUT) was also able to reach record highs last week.

But I think that the chart of the week has to be the breakout in the Russell2000 relative to the S&P500. As we can see, after 18 months of underperformance, the small-caps are finally breaking out against their larger-cap counterparts. The area chart at the top represents the S&P500. The bar chart shows the Russell 2000 with a the blue line chart for the $RUT / $SPX ratio:

1-6-13 RUT vs SPX ratio

“Given the tendency for small cap stocks to act as leaders for large caps on the upside, yesterday’s bullish breakout is an encouraging sign for the rest of the market” – John Murphy Jan 5, 2013



Record High By Small Cap Stocks Is a Positive Sign For The Market (StockCharts)