Can Momentum Build in Small Caps?

July 8, 2024

Mish's Daily

By Mish Schneider

We have heard many discussions on whether small caps (Granddad Russell 2000 IWM) really matter for the market.

Here are a few talking points:

  1. For 10 years IWM has underperformed, so who cares?
  2. The tech and growth sector will continue to go up regardless, so if interest rates are lowered-it could help small caps, but growth stocks will rally even more-in order words, the bifurcation continues
  3. Small caps are incredibly underpriced, and are the next big more-Druckenmiller thinks so and so do a few other billionaires
  4. Small caps reflect the reality of poor economic growth and will eventually drag down the growth stocks as a recession is coming.

The interesting thing is that all these points are feasible and possible.

So where do we go?

Perhaps we can draw some conclusions from the daily chart.

Looking at Real Motion, the momentum has not cleared the 50-DMA (blue) since May.

So, the first thing we want to see is a substantial gain in momentum.

Secondly, IWM has underperformed SPY.

More importantly, IWM has not cleared the Bollinger Band or zero line in Leadership since 2023.

Hence, until we see some real Leadership IWM is rangebound.

Furthermore, the Russell 2000 IWM remains stubbornly in a caution or warning phase. The price sits below the 50-day moving average.

IWM needs two closes above the 50-DMA, and better still, the price needs to clear 205.

What conclusions can we draw right now?

Yeah yeah we love our Sister Semiconductors SMH and NVDA.

Nonetheless, we still cannot say for sure which scenario plays out-

Number 1- For 10 years IWM has underperformed, so who cares?


Number 4- Small caps reflect the reality of poor economic growth and will eventually drag down the growth stocks as a recession is coming.


Educational purposes only, not official trading advice.

For more detailed trading information about our blended models, tools, and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

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ETF Summary

S&P 500 (SPY) 5400 support 5600 resistance

Russell 2000 (IWM) 197-205 tightest range to watch

Dow (DIA) 40k resistance

Nasdaq (QQQ) Another new all-time high

Regional banks (KRE) Watching the range 45-50 CAREFULLY

Semiconductors (SMH) 260 -280 range

Transportation (IYT) 67 hurdle to clear 64 support to hold

Biotechnology (IBB) 140 pivotal resistance

Retail (XRT) 200 week moving average support at 72.75. Needs to recapture 74.50

iShares iBoxx Hi Yd Cor Bond ETF (HYG) Pointing more risk on for now

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