Since Nov lows, small caps rule

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With the market tumbling back into shouting distance of the November bear market lows amid a crisis of confidence about the bank bail-out plan and a cacophony of worries about the time needed for stimulus plans to resuscitate the economy, a silent supportive performance element is playing out. If you’re wondering where the silver lining is in the current stormy weather, wonder no longer: small-caps are putting up a better fight than their big-cap brethren—and that’s a mild good sign for the market.

Right about now, diehard market watchers might be saying, “Hey, wait a second...the Dow is down 10.5% in 2009 and the Russell 2000 (NYSE:IWM) is off 10.2%, and getting bullish over three-tenths of one percent is silly.” While that ’09 comparison might be true, here’s the rub: the Dow is only 5.3% above the November lows, meanwhile, the Russell is actually up 20.8% from their November lows.

One of the hidden bright spots in the recent sobering price action for the stock market has been this relative out-performance in small-caps vs. large caps. This week the Dow crashed through the previous January pullback lows and notched the lowest close on daily charts since those major November lows were forged. Yet the Russell remains well clear of the January lows.

Why is it good to see small-caps holding up better on this latest test of buyer resolve? Because when the market collapsed back in September, small-caps led the panic sell-off; this time around, as the market teeters on the verge of retesting the bear market lows, it serves up some modicum of comfort to see small-caps not leading the bearish charge at this juncture...

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