Research Excerpts

Small Cap Key To A Strong 1st Quarter

Posted on: Wednesday, February 19th, 2014

The following (green highlights) is one of 12 charts and accompanying analysis/commentary that were featured in Tuesday’s (February 18th) Keys To This Week report.

Keys To This Week is a bullet-pointed list of key market metrics, data series, and corresponding charts pertaining to the US stock market and market sectors, US interest rates, the US Dollar, and economically-influential commodities that we believe are the most potentially influential to upcoming US financial market direction over the next one to several weeks, and includes our broader market forecast 1-2 quarters out.

We utilize a comprehensive list of market metrics including intermarket relationships, investor sentiment, seasonality, relative performance, investor asset flows, market breadth, and price patterns and trends to formulate an “under-the-hood” analysis and forecast of the US financial landscape that tends to be more forward-looking than the typical Wall Street approach.


Excerpt From: Keys To This Week
Asset Class:
The US Stock Market
Topic: Market Breadth in the Russell 2000
Date: February 18th 2014

Chart 6 below plots the small cap Russell 2000 daily since 2012 in the upper panel, with the percentage of the index’s constituent stocks trading above their 200-day moving average plotted by the blue line in the lower panel.

Chart 6 of 12

Chart 6 of 12

The bent green arrow in the lower right edge of the chart shows that this metric has been rising from an historic low extreme of around 20% since February 4th. The green vertical highlights between both panels show that previous instances of this have coincided with every significant near term bottom in RUT during this period. A near term rise in RUT would be expected to lead a similar rebound in the US broad market.

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The small cap Russel 2000 led the S&P 500 higher between mid April 2013 and January 22nd, outperforming the US broad market index by 10% during this period.  The major topic being discussed right now is whether the US broad market can continue grinding higher in the 1st Quarter, on the heels of a 30% advance in 2013 and amid record cold weather- and Fed tapering-related headwinds.

Relative performance is one way to determine if the 2013 uptrend still has legs — simply put, if the leaders that got us here can still lead.  The chart above tells us that, at least from a market breadth standpoint, this is where small cap should start to lead again.  If it doesn’t, the market is going to have problems.


Asbury Research subscribers can view our entire February 18th Keys To This Week report by Clicking Here.