Small Caps Are Outperforming Again
QQQ vs IWM? In some ways, it’s the big debate of 2021. Will traders stick with megacap growth stocks, or ride fast-moving small caps as the economy reopens? Or will they simply rotate between the two, guided by events and price action?
Right now could be a time when a flip is taking effect again. This chart shows relative strength of the Russell 2000 Small Cap ETF against the S&P 500. Notice the long period of outperformance that began in October as investors anticipated (and then acted on) the economic recovery. Also notice the period of relative weakness in March as traders “sold the news” about reopening. Small caps have consolidated since then, but now are starting to outperform again.
Second, notice the series of higher lows between May 12 and May 25 as IWM was unable to close above $221.50. This ascending triangle resolved to the upside the next session, followed by breakout late last week. Interestingly this pattern neatly falls along the 100-day simple moving average (SMA).
Finally, MACD is turning positive again.
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Right now could be a time when a flip is taking effect again. This chart shows relative strength of the Russell 2000 Small Cap ETF against the S&P 500. Notice the long period of outperformance that began in October as investors anticipated (and then acted on) the economic recovery. Also notice the period of relative weakness in March as traders “sold the news” about reopening. Small caps have consolidated since then, but now are starting to outperform again.
Second, notice the series of higher lows between May 12 and May 25 as IWM was unable to close above $221.50. This ascending triangle resolved to the upside the next session, followed by breakout late last week. Interestingly this pattern neatly falls along the 100-day simple moving average (SMA).
Finally, MACD is turning positive again.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
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