They have not been performing as well as the rest of the stock market. Not by a long shot.
The small caps fell further and have not recovered nearly as fast nor as far as the S&P 500 and the NASDAQ Composite. This may not be good long-term because the lack of a real recovery in the Russell 2000 is a failure to confirm any sense of widespread bullishness. In other words, investors are holding back.
You want all of the pistons in the cylinder block to be creating the full energy. When one of them is weak, the engine won’t be taking the car for a long ride out on the road without some difficulty. This is the situation right now with the major stock indices.
Despite rising bullish sentiment and a sense among some that the worst may be over, an analysis of the difference in price charts may be in order.
To clarify the issue — here’s the hourly price look for the S&P 500:
S&P 500 price chart, hourly 4 18 20.
The main thing is the last bar which closes higher than the previous ones for all of the month of April and for all of the latter part of March. That’s a short term “new high” for the major, most widely followed index. Note the gradual decline in volume, shown below the price chart, as the days and weeks progress. So, that’s steadily upward on steadily less volume.
Now take a look at the same time frame for the Russell 2000 Small Cap Index:
Russell 2000 Small Cap Index, hourly price chart, 4 18 20.
What’s significant is that this index can’t quite get there by week’s end. The price bar is below the higher short-term highs seen just days earlier. This group of stocks is not performing as well as the wider larger capitalized group. A Friday close that negatively diverges from the S&P 500 may be telling.
For a wider perspective, here’s the weekly chart for the S&P 500:
S&P 500 weekly price chart, 4 18 20.
The horizontal red dotted line indicates the level of prices at the late December, 2018 lows. You can see how the dramatic selling of March, 2020 dropped below that level and then stocks rebounded. Note that the buying took the S&P 500 well back above the same red dotted line.
Now here’s the weekly price chart for the Russell 2000 Small Cap Index:
Russell 2000 Small Cap Index weekly price chart, 4 18 20.
Do you see the potential problem? The small caps dropped well below the late 2018 lows and are now unable to rise above that level. Note how different this is from the performance of the S&P 500. The Russell 2000 has touched that dotted red line but, so far, stops there and pulls back from it.
Bad piston. Caution may be warranted for the remainder of the journey.
I do not hold positions in these investments. No recommendations are made one way or the other. If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.