Small stocks may be sending a big signal

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The S&P 500 has risen nearly 12 percent since hitting its mid-February lows, but the small-cap Russell 2000 has done even better, surging 15 percent in just more than a month.

And according to Craig Johnson, technical analyst at Piper Jaffray, this small-cap outperformance is a great sign for the bulls.

“This rally has more room to run, and small caps will be there to lead this charge higher,” Johnson said Friday on CNBC’s “Trading Nation.”

He points out that major moves higher in stocks are often led by the “low-quality” names — the smaller, more vulnerable stocks, rather than the blue chips.

The small-cap runup “is a healthy thing for the market,” he said.

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Yet Larry McDonald, head of global macro strategy at ACG Analytics, takes the other side.

“Small caps are now catching a bid, but if it’s a rally, it’s a rally in a bear market,” he said Friday, also on “Trading Nation.”

Further, he posits that “what’s worked best since September is to go the opposite way of the crowd” — and by that logic, McDonald says “you want to sell the small caps.”

Still, it’s worth noting that despite the Russell’s powerful rebound, the index is still lagging the S&P this year.

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