Market Insider

Watch out! Small-cap recovery could be a head fake

Traders on the floor of the New York Stock Exchange.
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Small caps waffled Tuesday, leading some to say the big bounce Monday was purely a head fake rally.

But the jury is still out on whether the Russell's nearly 2.4 percent jump Monday coming after the index reached the 10 percent correction zone Friday was a rally back, after capitulation. On Tuesday, the Russell slumped, closing 1 percent lower at 1121, while big caps pressed on to close at record levels for a second session.

"The only thing you have right now is the stability holding the low," said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management. "Regardless, the bigger thing is that the idea of the leadership baton being passed to the large caps is lasting. I think (small caps) they're going to lag to the upside but you could make a case where they're going to drag on the downside. Either way, they're going to underperform."