Why I’m worried about small caps: Trader

The Russell 2000's upward momentum is "waning," warns one trader who sees losses ahead for the small-cap index.

While the S&P 500 is up more than 2 percent over the past year, the Russell has dropped 3 percent.

"The divergence, or the momentum, has been lost," Todd Gordon, founder of TradingAnalysis.com, said Tuesday on "Trading Nation," pointing to a chart of the relative strength indicator, which is making "lower highs" relative to the Russell 2000.

One reason for the index's weakness is the financials, which have lagged recently, and comprise about a quarter of the Russell, as compared to about 15 percent of the S&P.

Gordon points out that the Russell has not yet eclipsed its 2015 peaks, as opposed to the S&P 500, which has made a series of all-time highs.

"They say don't sell a quiet market, but I'm very much on guard for a reversal out of this uptrend channel in the Russell," Gordon said.

"And we will be looking for short opportunities in the relative underperformer that is the Russell 2000."


Trades to Watch

Trader Bios


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.

Read more