Small-Cap Stocks Break Out On A Relative Basis
- Posted by JC Parets
- on January 7th, 2013
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:
“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
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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