Small stocks may be sending a big signal

The S&P 500 has risen nearly 12 percent since hitting its mid-February lows, but the small-cap Russell 2000 has done even better, surging 15 percent in just more than a month.

And according to Craig Johnson, technical analyst at Piper Jaffray, this small-cap outperformance is a great sign for the bulls.

"This rally has more room to run, and small caps will be there to lead this charge higher," Johnson said Friday on CNBC's "Trading Nation."

He points out that major moves higher in stocks are often led by the "low-quality" names — the smaller, more vulnerable stocks, rather than the blue chips.

The small-cap runup "is a healthy thing for the market," he said.

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Yet Larry McDonald, head of global macro strategy at ACG Analytics, takes the other side.

"Small caps are now catching a bid, but if it's a rally, it's a rally in a bear market," he said Friday, also on "Trading Nation."

Further, he posits that "what's worked best since September is to go the opposite way of the crowd" — and by that logic, McDonald says "you want to sell the small caps."

Still, it's worth noting that despite the Russell's powerful rebound, the index is still lagging the S&P this year.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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