Russell (IWM) Rally Falling Behind DOW

As we’ve mentioned a few times over the past two weeks, one bearish factor of the broad market’s recent action has been the relative weakness in the small-cap arena. In most uptrending markets, the Russell 2000 Index outperforms the S&P and Dow because its small-cap components are “aggressive growth” companies whose stocks are considered to be more speculative in nature.

But this has not been the case throughout this month. Unlike the S&P and Dow, the Russell 2000 never managed to rally above its prior highs from September. Then, when the broad market corrected last week, the Russell fell more than the rest of the major indices, and is already below its 20-day EMA. If the Russell loses just one percent more, it will lose support of its 50-day MA, a closely-watched indicator of intermediate-term trend. Take a look at the Russell 2000 Index (RUT):