Small cap stocks tend to offer a bit more risk and reward. That equates to higher beta, which in turn tends to mean stronger returns when the broader market is healthy, and weaker returns when the broader market is in the doldrums.
So where are we now? Likely at an important juncture.
Small cap stocks as measured by the Russell 2000 (INDEXRUSSELL:RUT) and micro cap stocks as measured by the iShares Micro Cap ETF (NYSEARCA:IWC) are testing important support levels. Both indices rallied higher in August/September, breaking out above an 8 month trading range.
The Russell 2000 (RUT) and Micro Cap ETF (IWC) spent much of October backing and filling, before testing those breakout levels last week (point 1). Note that both put in bullish reversal candles last week.
This will bode well for small and micro cap stocks IF they see follow through higher over the coming days/week. It’s also worth noting that large cap stocks, as measured by the S&P 500, are currently testing all-time highs. Rally on? Stay tuned.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.