Picture du Jour: Keep an eye on small caps

By Prieur du Plessis, on March 20th, 2010 posted in: Investment, Stocks

As one would expect during a bull market, small caps have been a leading performer since the low of March 9 last year, with the Russell 2000 Index gaining 96.3% compared to a rise of 71.4% in the S&P 500 Index.

Considering the last few days, however, small caps seem to have been tiring. As a result, the Russell 2000 Index has been the only major US stock market index to register a loss for the past week as shown below.

Source: StockCharts.com

A few days’ underperformance is hardly grounds for drawing meaningful conclusions, but it is worth watching this space for a pointer regarding the overall market.

I will leave you with a chart of the ProShares UltraShort Russell 2000 ETF (TWM), a fund that seeks daily investment results corresponding to twice (200%) the inverse (opposite) of the daily performance of the Russell 2000 Index. Being Saturday morning, I am posting the picture without further comment for you to ponder the most likely short-term direction of this bear ETF, and by implication the next move for small caps and stocks in general.

Source: StockCharts.com

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

Keith Piccirillo

March 20, 2010 at 5:59 pm

My little TWM hedge from 3/10 is doing ok.
Rhetorically, how does one measure opportunity cost in a swing trade, as opposed to losing it to a tight stop, or closing it at day’s end? These inverse positions degrade for swing traders.

Frank W

March 22, 2010 at 2:51 am

I don’t know. The small caps chart that I saw last week looked pretty good to me. It suggested that small caps have got a way to go before correcting.