Small Caps Are Leading to the Downside
Indexes of big companies like the S&P 500 and Nasdaq-100 neared record highs in July, but not the small cap Russell 2000. Today we’ll use a weekly chart to consider how it’s leading to the downside.
The first pattern is the series of lower highs starting in August 2022. RUT unsuccessfully tested that area in January and again in July, which could suggest it’s become resistance.
The price action is noteworthy because SPX and NDX both cleared those respective levels from the summer of 2022. With relative strength already negative, will the weak get weaker?
Second, the 1650 area was resistance in late 2020. RUT bounced there in June 2022 and again last October. Traders may now view that level as a downside target.
Third, consider the macro environment. Some strategists have recently noted that small caps are more vulnerable to rising interest rates (unlike bigger companies that locked in long-term financing at lower rates). They’re also more associated with risk appetite because of their focus on industrials and financials. That could increase their difficulties if volatility increases further.
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TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. TradeStation Crypto, Inc. offers to self-directed investors and traders cryptocurrency brokerage services. It is neither licensed with the SEC or the CFTC nor is it a Member of NFA. When applying for, or purchasing, accounts, subscriptions, products, and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
The first pattern is the series of lower highs starting in August 2022. RUT unsuccessfully tested that area in January and again in July, which could suggest it’s become resistance.
The price action is noteworthy because SPX and NDX both cleared those respective levels from the summer of 2022. With relative strength already negative, will the weak get weaker?
Second, the 1650 area was resistance in late 2020. RUT bounced there in June 2022 and again last October. Traders may now view that level as a downside target.
Third, consider the macro environment. Some strategists have recently noted that small caps are more vulnerable to rising interest rates (unlike bigger companies that locked in long-term financing at lower rates). They’re also more associated with risk appetite because of their focus on industrials and financials. That could increase their difficulties if volatility increases further.
TradeStation has, for decades, advanced the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Important Information
TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. TradeStation Crypto, Inc. offers to self-directed investors and traders cryptocurrency brokerage services. It is neither licensed with the SEC or the CFTC nor is it a Member of NFA. When applying for, or purchasing, accounts, subscriptions, products, and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
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