Is it time for small-cap stocks in the US stock market?
If the support level is not broken, it may trigger a short-term buy signal - predicting that small-cap stocks will rebound relative to the S&P 500 index.
Small-cap stocks in the US stock market are currently facing a difficult situation.
Over the past 10 years, the performance of small-cap stocks represented by the Russell 2000 index has always lagged behind that of blue-chip stock indices. Is there any hope for this situation to change soon?
From the monthly trend chart of the ratio between the Russell 2000 index and the S&P 500 index, we can see how much small-cap stocks have lost.
The Russell 2000 index has fallen 30% relative to the S&P 500 index since its peak in 2013. Then, starting from the low point in 2020, the Russell 2000 index has outperformed the S&P 500 index by 29% in just six months. But since its high point in 2021, it has been on a downward trend.
Currently, the ratio of the Russell 2000 index to the S&P 500 index is testing the final support level - the trend line that started to rebound at the bottom of 1999/2000.
The momentum indicator is diverging from the price trend, setting higher lows, and the ratio has been setting lower lows since 2020.
If the support level is not breached, it may trigger a short-term buy signal - predicting that small-cap stocks will rebound relative to the S&P 500 index.
But if the support level is decisively pierced, it is predicted that the Russell 2000 index will accelerate its decline, and its performance will lag behind the S&P 500 index by another 20%.
A critical period is just ahead.