Russell 2000

Today, I want to focus on the Russell 2000. Those who have been following me for a while know I am concerned because R2000 shares are not following the strong trend of the S&P 500.

The Russell 2000 Index contains 2000 small-cap stocks.
The Russell 1000 Index tracks the companies with the highest market capitalization.

The curves usually superpose with often a slightly better performance of the smallcaps. However since mid-2023 we have seen the Russell 1000 perform stronger.

Everyone knows why by now.

Nasdaq Composite vs. Total Average

Earlier this year, I substantiated this by showing the return of the COMP and the average return of all Nasdaq stocks for the year 2023. The COMP return was 43%, while the average return of all stocks was only 4%. If you had the QQQ, SPY ETF, or something similar, you would have had a fantastic return. However, if you were stock-picking and did not buy the big names, it was hard to beat the index, or even get a positive return.

I have now expanded the table with eight columns for each month of this year and the six-month return. Every month, the ‘averaged’ stocks underperformed the COMP.

However, this month we see green numbers for the first time.

Breakout or not?

It looks like a breakout, but certainty will come in the coming days or weeks.

A real breakout?
We compare with 2020 and notice a symmetrical extension. (Green arrows)
If we project to now, you have a possible target around 2600. (orange arrows)

False breakout?
We compare with 2021 and draw the resistance line.
In red, you can see from the breakout to fall back through support a few weeks later and start a downward movement.

If we project to now, you see important support at approximately 2,030.
So for the current situation, it is important to stay above the green support line.

Pivots

Important pivots for the Russell 2000 are around 2100, 2300 and 2465.

Outperformers

Which Russell 2000 stocks are performing strongly in July?

I have set TopLab to include the strongest risers of the past five trading days and those quoting a maximum of 10% below their all-time highest price of the past 10 years.

Looking at the results, surprisingly, we see a lot of housing (green stars) and banking (red stars) stocks.

I created a performance chart with these two sectors and the Russell 2000 ETF. Keep an eye on them.

Conclusion

Recent developments in July indicate a potential breakout, suggesting that smaller stocks might be poised for a recovery. Key pivots and historical comparisons provide crucial insights, and sectors like housing and banking are showing promising signs.

Active investors should keep an eye on these sectors and the overall performance of the Russell 2000 to capitalize on emerging opportunities.