Everyone is used to complaining about how large-cap tech stocks are the leaders of this market.
I think there could be something new for them complain about.
You see, last time the Russell 2000 Small-cap Index was at these levels relative to the Large-cap Nasdaq 100 Index, Small-cap stocks went on a historic run, particularly relative to those large-caps.
It started exactly 20 years ago, from the exact price we’re at today.
Here’s what that looks like:
Click on Charts to Zoom in
The Russell2000 Small-cap ETF $IWM was launched in May of 2000. This chart shows the historic run of outperformance that Small-caps saw starting shortly after that. It’s rare for that sort of thing to happen. Usually it’s the opposite. See Homebuilders ETFs 2006.
So maybe that bucking of the trend is more information we can use. Or maybe that’s just a coincidence. But either way, I see prices down near historic support and bullish momentum divergences on both the daily and weekly timeframes.
Look at how Small-caps performed vs the Large-cap Nasdaq last time they were at this exact price:
Based on the first chart above, if Small-caps are ever going to start to outperform the monsters in the Nasdaq100 again, this would be a perfectly logical time for that to start. And so far, that’s exactly what we’ve seen throughout September.
Here’s a relative performance chart moving forward from last time we were here:
What do you think?
Seems like everyone is always complaining about how these mega-cap Nasdaq 100 stocks are too big and control the market.
What are they going to complain about next? That they’re underperforming and dragging down the indexes?
I think yes.
What’s the solution?
Find small and mid-cap stocks making new highs and driving these higher, particularly relative to the Nasdaq.
What about sectors?
I think sectors with smaller weighting in the index will continue to outperform both the major indexes and those nasdaq-type sectors.
What does it mean for large-cap index investing?
I think it could have a really tough time moving forward.
I prefer individual securities and/or specific sector ETFs all day long for the environment I believe we’ve just entered into.
So you still like buying stocks?
Yup. Just very specific ones.
What do YOU think?