Small Caps Join the Rally

MarketSurge powers the charts in this video.

The small-caps Russell 2k finally closed at new 52-week highs. The recent drop in interest rates is an essential factor. IWM has been making higher lows and higher highs above its rising 50-day moving average and it is now setting up for a major breakout above 206. If this happens, it will only accelerate the current risk-on mentality. There’s always the chance of a false breakout but it would play out in several days, even weeks. For example, if IWM goes 210 and then quickly reverses below 200 and then below 195, we might see a swift downside move. As of now, things are pointing higher, and more stocks are likely to join the current melt-up that we are experiencing in the market. 

This rally is not just about semiconductors which have been the clear leader year to date. Software, biotech, retailers, and industrials have also been advancing steadily. Even energy stocks are trying to break out. Gold is setting up for a potential breakout from a multi-year base. Bitcoin and anything crypto-related has been in a steep uptrend. 

I have to point out that it’s not just milk and honey, roses and butterflies in the current tape. In the past couple of weeks, we finally saw some stocks selling off after strong earnings reports and weak guidance – SNOW, PANW. This is something to keep an eye on if it expands into more stocks because it could be a sign of a topping behavior. It only comes to remind us that bull markets tend to be low-correlation markets of stocks, where most stocks go up and not all of them. As the saying goes, stocks tend to top individually and bottom as a group.

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