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Are Small Caps Sending a Message?

Monday, 24 Oct 2011 | 4:53 PM ET

Small caps were playing catch up Monday, with the Russell 2000 taking the lead over the big cap indices and on the verge of confirming the market's bullish trend.

Caroline Purser | Photographer's Choice | Getty Images

Whether that means the Russell 2000 will confirm the other indices bullish move for technicians has yet to be seen. But investors were broadly buying into the index and the small cap group, sending the iShares Trust Russell 2000 ETF more than 3 percent higher.

The Russell was up 23 points, or 3 percent at 736 Monday, while the Dow was up 0.9 percent at 11,913 and the S&P 500 was up 1.3 percent at 1254. The Nasdaq was up 2.4 percent at 2699.

But for the year-to-date, while the other major equity indices are positive or close to it, the Russell is still down more than 6 percent. The Dow is up 2.9 percent and the Nasdaq is up 1.7 percent. The S&P 500 is about 0.3 percent lower on the year.

Credit Suisse small and mid cap strategist Lori Calvasina said she thought Monday was important since the Russell broke through 728, a level it hasn't been at since late August. "I think today was definitely an important day because we broke through the top end of that range that we've been in since August," said Calvasina. "I think that was really important psychologically."

"I definitely sensed a worry from small cap long only guys that we would take off in the fourth quarter and they wouldn't be prepared, and they would have to chase. That's been the number one fear for the last couple weeks, and that's basically because they aren't positioned for a rally like this," added Calvasina.

Paul LaRosa, chief market technician with Maxim Group said the Russell 2000 will need to close above 737, just a hair higher, to follow the Nasdaq, Dow and S&P 500 in confirming the market's bullish trend. The Dow broke resistance at 11,716 last week, and the S&P 500 broke it when closed above 1230 on Friday.

"I do think it's real. I do think we've started to see a turn here. I would not be surprised if we pulled back a bit, but this time dips should be purchased. We've been seeing signs for about a month now. October 4 was the key day. Things have really improved technically since then," LaRosa said.

Since Oct. 3, the Dow is up 11.7 percent, while the S&P 500 was up just under 14 percent. The Nasdaq was up about 15 percent, and the Russell is up 20 percent, but still below its resistance level.

"In my research, I need to see all four indices move in the same direction...You're at the top of the range and three of the four closed above their resistance except for the Russell. If that doesn't close above it in the next couple of days, it could lead to a negative divergencey, and you'd have a sell off," said LaRosa.

For the best small cap performers since Oct. 3, take a look below.

Russell 2000 Index Top 20

Company Name Ticker Price % Change from 10/3/2011 Sector
Uranium Resources, Inc. URRE 1.3 132.7 Energy
Complete Production Services, Inc. CPX 31.03 82.9 Energy
BigBand Networks, Inc. BBND 2.25 81.5 Information Technology
Liz Claiborne Inc. LIZ 7.91 76.6 Consumer Discretionary
Select Comfort Corporation SCSS 21.57 73.8 Consumer Discretionary
eMagin Corp. EMAN 4.03 70.0 Information Technology
Excel Maritime Carriers, Ltd. EXM 3.16 69.0 Industrials
Uranerz Energy Corp. URZ 2 68.1 Energy
Abraxas Petroleum Corp. AXAS 3.82 66.1 Energy
Entravision Communications Corp. EVC 1.46 65.9 Consumer Discretionary
Solta Medical, Inc. SLTM 2.04 65.9 Health Care
LIN TV Corp. TVL 3.15 65.8 Consumer Discretionary
Central European Media Enterprises CETV 11.07 64.7 Consumer Discretionary
Zale Corporation ZLC 3.71 64.2 Consumer Discretionary
CAMAC Energy Inc. CAK 0.8201 64.0 Energy
James River Coal Co. JRCC 9.04 62.9 Energy
Flagstar Bancorp Inc. FBC 0.7916 62.9 Financials
Rentech, Inc. RTK 1.22 62.6 Energy
PMI Group Inc. PMI 0.3076 61.9 Financials
Fairpoint Communications, Inc. FRP 5.85 61.6 Telecommunication Services
Source: CNBC Analytics, Reuters, and Capital IQ
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