Something I saw Tuesday morning makes me think stocks are going higher: Trader

Small-cap stocks are signaling big gains for the broad market, according to one trader.

The Russell 2000 index has been surging, outperforming the large-cap S&P 500 index over the last week, month and three months. And that could signal the next leg higher for the broader market.

"I've been paying attention to the Russell 2000 that's been outperforming both the S&P and Nasdaq. That's a bullish sign for the broader stock market," Todd Gordon told CNBC's "Trading Nation" on Tuesday. The small-cap index is up 2 percent since the start of June while the S&P 500 and Nasdaq have risen less than 1 percent.

Looking at a chart of the IWM, the ETF that tracks small caps, Gordon noted that since the late April high of $115, the ETF has rallied further, gaining more than 2 percent.

But what really had Gordon convinced Tuesday morning that the rally was about to heat up was when the large-cap S&P 500 breached its respective April high. The next confirmation for Gordon will be when the Nasdaq breaks above its 2016 high, which it is just points away from.

"Small caps generally can act as a leading indicator to where broader markets can go," said the founder of TradingAnalysis.com. "They have a historical precedent of doing that and I believe this is no different."


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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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