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
Tags: $SPY $SLY $MDY $IWM