What Happens When Small Caps Win
The Race to the 10th Trading Day?

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Last Thursday concluded the first 10 trading days of the year.

So far, the Small Caps are winning and by a wide margin!

Looking back to 1994, the Russell 2000 has led the year after the first 10 trading days only 33% of the time.

Here’s a list of the years it has led the year initially.

Those are fun facts, but does it matter?

Does the performance of the first 10 days offer any insight into what the rest of the year will do. Unfortunately, the answer is categorically – it depends.

Does the fact that the small caps are leading bode well for the market? The short answer is YES. 9 out of 10 years that it was leading after 10 days, the market closed the year higher and higher than it was after the first 10 days.

But does the Russell tend to maintain its leadership status throughout the year? We’ll cover that below.

It’s Not The Initial Move That Matters

More important than January’s initial move, is what happens next.

We look at this range very closely for the rest of the year because it can provide great insight into the markets’ future trends, and it serves as a risk management tool when used properly.

The chart below shows the S&P 500 with the range of the first 10 trading days marked with red and green lines. As you can see, a simple rule of being bullish over the green lines and bearish under the red lines would have served you well.

As you’ll see below, this indicator is effective on all stock markets, ETFs, and stocks.

 

 

 

Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.  The video analysis dives deeper.

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Summary: Overall, the market remains broadly risk-on as most indexes are still in bull phases, market internals and new-high/new-low ratios are constructive, leadership is expanding into small caps and foreign markets, and seasonality remains supportive into mid-February. However, mixed volume, weakness in QQQ and growth stocks, surging metals, utilities’ relative strength, and a potential volatility breakout introduce caution, suggesting a healthy but increasingly fragile risk-on environment with rising risk-off crosscurrents.

Risk On

• Indexes were down on the week with the exception of IWM, though they all remain in bull phases. IWM is the most overbought on Real Motion, though it hasn’t hit extremes on price. QQQ is lagging the most and you should watch for potential breakdowns below its 50-Day Moving Average. (+)
• Market internals held up or improved on the week for the S&P. (+)
• New 52 week  high/ low ratio is stacked and sloped positive but running a bit rich at these levels. (+)
• The color charts (moving average of stocks above key moving averages) is risk-on in SPY and IWM and improving to neutral in QQQ. (+)
• Sentiment remains positive with a risk-on reading, however, a breakout in the cash VIX could be an early sign of a material sell-off in the market. (+)
• The modern family remains quite strong with five of the six members showing leadership relative to the S&P without being overbought on real motion and price. (+)
• Foreign markets outperformed the U.S. this week and are strong across the board. (+)
• Overall seasonality trends for all the indexes are positive till mid-February. Small caps are showing excessive strength, highlighting a broadening of the rally away from Growth and large cap stocks. (+)

Neutral

• Volume patterns remain mixed with stronger patterns in DIA and IWM, and quite weak volume in SPY and QQQ. (=)
• Sectors were more neutral with some strong performance in risk-on sectors like semiconductors and industrials, while also seeing weakness in Consumer discretionary, also a typical risk-on sector. Gold miners were the strongest sector. We see some separation between bleeding edge leading tech (semiconductors) and more broad technology which is starting to lag. (=)
• Silver was by far the biggest 5-day leader, up nearly 12%, and metals overall were quite strong (XME). (=)
• Risk gauge backed off because of relative strength in utilities. (=)
• Copper could have a double top from the July-December highs. $34 could be a key level to watch if it breaks down. (=)
• Gold continues its explosive action, potentially subject to mean reversion. $395 on the weekly chart is an important swing point and a close below could signal a change in trend.(=)
• Bitcoin showed some strength week over week higher highs from its November lows. It would need to get above $101k to get back into a bullish phase. (=)
• Rates remain largely in a sideways trading range. (=)

Risk Off

• Growth stocks failed its 50-Day Moving Average for three consecutive days. (-)

 

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Actionable Trading Plan

1. Core posture – stay risk-on, but tighten discipline.
   Maintain a net long bias while internals, seasonality, and broad participation remain supportive, but shift from aggressive expansion to selective exposure and active risk management. Favor small caps, foreign equities, and leading “Modern Family” groups (especially semiconductors/industrials) over broad growth and mega-cap tech, which are showing early deterioration.
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2. Focus on leaders, not the averages.
   Concentrate new capital in areas still showing relative strength and constructive participation, and reduce or avoid segments showing persistent lagging behavior (broad tech, growth-heavy baskets). Prioritize stocks/ETFs making relative-strength highs rather than trying to defend weakening benchmarks.
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3. Scale, don’t commit.
   Use incremental adds on strength rather than full-size entries, and trim into sharp upside extensions, particularly in small caps and metals. Let positions earn the right to become core holdings.
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4. Risk management shifts to center stage.
   Tighten stops across portfolios, trail profitable positions more actively, and cap total exposure so a volatility spike or growth-led downdraft does not materially damage equity curves. Any increase in utilities leadership, metals acceleration, or further growth-stock failure should trigger automatic gross exposure reduction.
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5. Metals and alternatives = tactical, not core.
   Treat gold, silver, and miners as short-term tactical trades rather than long-term risk-on allocations. Be quicker to harvest gains and faster to exit on loss of momentum.
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6. Pre-define your “defensive trigger.”
   If leadership continues to narrow, volatility expands, and growth remains in sustained deterioration, rotate a portion of capital into defensive or non-correlated buckets (market neutral, hedges, lower beta, or cash equivalents) rather than waiting for index-level damage.