The chart below shows the relative strength of the Russell 2000 compared to the S&P 500. When the line is rising, small-cap stocks are outperforming, and vice versa when the line is falling. As shown, small caps peaked in terms of relative performance in early April and have been trending lower relative to large caps for more than two months now.
Since the S&P 500's recent closing low on June 15th, the index has rallied by 2.4%. Over that same time period, small-cap stocks (Russell 2000) have done even better, gaining 3.5%. So is this the beginning of a new leg higher for small caps? Not necessarily. Even after the recent jump, the relative strength of small caps remains in its downward trending range. So until that trend of lower highs is broken, small caps still have something to prove.
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