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This index’s ‘extraordinary move’ tells me the S&P is heading higher: Trader

One trader believes the market rally isn't over yet, based on the performance of the small-cap Russell 2000.

The index hit a one-year high on Monday, which Tim Seymour of Triogem Asset Management sees as an encouraging sign for the overall market. For the past couple of weeks, the small-cap index has been outperforming the S&P 500, which opened at an all-time high on Monday morning.

The Russell move is "indicative of the fact that there's probably more strength in the consumer than we had thought six months ago," Seymour said Monday on CNBC's "Trading Nation."

"I think the fact that small caps are outperforming, obviously this is an indicator of risk appetite," he added. "To that extent, [it's] very different from where we were in the Russell only six months ago. It's been an extraordinary move."

What's more, Seymour believes that now would be a good time to look beyond U.S. stocks, especially given what he sees between the ETF tracking the Russell 2000 (IWM) and emerging markets.

"Historically, [the Russell 2000] has been an index where I've really wanted to get short protection because of the higher beta elements of this index, especially for [traders] investing in global markets," he said. "The IWM correlates very well with the risk I have in a lot of emerging markets, so buying puts in the IWM right now are very, very attractively priced."

Ari Wald, technical analyst at Oppenheimer, also sees positive signs for the S&P 500 and small-cap stocks, describing the Russell's rally as a sign that the market is broadening. However, he believes that the NYSE's advance-decline line, which measures the number of stocks participating in a market rise or fall, is actually a stronger indicator of good times ahead for the S&P 500 based on past trends.

"Over the next 12 months, you have above-average performance versus any other 12-month period [in the S&P 500]," he said.


Wald does think that due to "seasonal weakness" during the summer, the S&P 500 could pull back 1 to 2 percent in the short term, but there is "a lot of support at the higher breakout at 2,135" that could indicate another market rise.

"I think people have missed out on this rally, [and] they're looking for any possible entry point with seasonal weakness," he said.

The S&P 500 hit a record high of 2,185.44 on Monday, before sliding to close the session with a slight loss.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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