The Russell 2000, which serves as a gauge for small companies, on an intraday basis has slipped into correction territory—a loss of more than 10 percent—since its most recent peak on March 4. Over the course of the year, the index has made a series of lower highs and lower lows that has alarmed investors.
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However, Adams thinks the overall story is not as dire as some think. He sees the index as showing some resiliency as traders have supported the early February low of 1,093.
"Despite all the negative attention the small caps have received lately, it is important to note that the Russell 2000 closing low from February 5th has been threatened on no fewer than eight different occasions and yet has held each time on a closing basis," he said.
As for the S&P 500, which tracks the market's biggest publicly traded companies, the story's been somewhat different.
The index has seen its peaks and valleys through the year but as of late has been in a steady if unspectacular pattern of slightly higher highs and slightly higher lows.
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Adams sees the 1,900 level as a good watch point.
Should the S&P 500 be able to break that, and the Russell 2000 defends its 1,093 support level and 200-day moving average, that would pave the way to a livelier summer, according to his analysis:
It will be interesting to see in the coming days if they can decisively move through the resistance. Moreover, if you look to the chart of the relative strength between the S&P 500 and the Russell 2000, the large caps have vastly outperformed small caps since early March...but the line is at possible resistance here and is the most "overbought" it has been since early 1999. With few exceptions, a healthy stock market is led by the more speculative small caps, and it should help break us out of the mire if this proves to be an inflection point in the S&P/Russell relationship.