×

Last time this happened small caps exploded higher: Technician

While Wall Street has been fixated on mega-cap tech stocks, quietly small caps have been surging, and the charts are pointing to more gains, according to one top technician.

Over the last month, the ETF that tracks the Russell 2000, the IWM, is up nearly three percent, outperforming the S&P 500, Dow and Nasdaq.

"We know that over time, small caps outperform large caps. That's because new innovative things outperform big, clunky things like IBM and Procter & Gamble," Carter Worth of Cornerstone Macro said Friday on CNBC's "Options Action."

On a chart of the Russell 2000 relative to the S&P 500, Worth noted that the small-cap index was underperforming its large-cap counterpart toward the end of 2015, but has since played a massive game of catch up.

Additionally, Worth highlighted a key consolidation period over the last several months on the chart, which could lead to a massive move higher.

"Here is the tight range of the Russell 2000, and it's about 6 months in the making. It's only happened one other time in the history of the index … and the last time it was resolved by a huge explosion on the upside," Worth explained. "I think that you've got a better bet [in small caps] than you do in some of the very extended super-cap names, and I think you want to be along IWM. … I'd rather be here than [in the] S&P."

Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.

Latest Video

Tutorials

Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Options Action Traders

From Our Sponsor

Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.