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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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