Russell 2000: Snubbed at last week's party

The Dow is at record highs, the S&P 500 is near record highs — and at the highest point in nearly seven years — and all is good, right? Before breaking out the champagne, it should be noted that small cap stocks as measured by the Russell 2000 forgot to join the party. A recovery late in the week still left the Russell 2000 below the 20-day moving average trend indicator, and in the shadow of the troubling topping formation that we addressed in last week’s column.

It’s possible we are seeing a shift in investor psychology toward large cap issues, which would favor the Dow and S&P 500 over the Russell 2000. If so, then perhaps the old adage that “a rising tide lifts all ships” can still benefit small caps along the way.

My concern with that theory is that the four-year-plus bull market run in stocks has been paced by small caps, and turning over leadership to another index is troubling – if for no other reason than it breaks a cycle that has been very friendly to the bullish side of things.

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