The charts are pointing to a Santa Claus rally for small caps

A small cap catch-up trade into year-end

Small caps are lagging the broader market, but one technician says the charts are pointing to a potential Santa Claus rally for the group.

As the Dow and just hit record closing highs, the Russell 2000 continues to underperform this year. While the Dow and S&P 500 have surged 23 percent and 19 percent, respectively, in 2017, the Russell 2000 is only up 12 percent.

However, according to Carter Worth of Cornerstone Macro, "the lag in small caps is enough to suggest that you want to play this for a catch-up."

Looking at a historical performance for December, Worth noted that from 1976 to 2016, the Russell 2000 has outperformed the S&P 500. The small caps were up 2.6 percent, while the S&P 500 was down 1.5 percent.

Nevertheless, "in 2017, we're not on pace. We're not on schedule," he said. The S&P 500 is up 0.15 percent as the Russell has fallen 1.5 percent. "This is an anomaly," Worth said.

From a technical standpoint, the charts are pointing to a comeback for the small caps, he noted.

Worth explained that the Russell 2000-tracking ETF IWM is positioned to make a move higher after falling from a previous high. "You can make the bet that IWM goes higher. I want to be long."

The IWM was trading at $151.70 midday Monday.

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