📈 Small Caps Lead But...

Small capitalization stocks lead the markets. This is usually the case as smaller companies react faster to economic situations due to their size. Think of it as a ship. The bigger the market capitalization the harder to turn course. A great example of this is the 2000 dotcom bubble. The Nasdaq is the growth engine therefore it will have the most volatility. It took over 15 years for the Nasdaq to reclaim the high. The SP500 (orange) took 8 years. The Russell 2000(light blue) took 4 years

The question now is will the Russell 2000 lead again. The index has underperformed the SP500 at a level not seen in 23 years. The average relative performance can be seen in light blue. Currently we are set to test the SP500 outperformance over the Russell 2000 highs at this pace.

With the current financial conditions tightening and the Russell 2000 having a higher percent of regional bank weightings than the other indexes, the index might be an outlier. IWM is the only index below the 200 SMA on the weekly chart. It’s also the only index with a bearish MACD rolling under the zero line

Nasdaq weekly is currently above the 200 SMA and MACD is above zero line for the first time since 2021

The SP500 is tracking the Nasdaq NOT the Russell 2000(IWM) at least for now.

The question is will the Russell 2000 forecast what is too come or is it an outlier like most of 2022 has been. I dive more into the topic in great detail in the video below. I walk through where we are in the economic cycle and what sectors are the best right now. Also focus on what I say about the banks and what ones I am looking to buy.

Wishing Everyone Massive Success in 2023 🍾