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Markets are going wild, but small-cap stocks are holding up — here's the next move

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Three reasons small cap stocks could be set to outperform

The markets received a volatility injection in the last week, and small-cap stocks are no exception. But one market strategist is arguing that on a technical basis, the Russell 2000 index is holding up well relative to its large-cap peers and is well-positioned going forward.

While the Dow Jones industrial average, and Nasdaq Composite have all fallen around 5 percent in the last week, the small-cap stock index has declined a little more than 4 percent. On Wednesday, the Russell 2000 closed the day barely positive while the Nasdaq Composite, S&P 500 and Dow all closed in the red.

Matt Maley, equity strategist at Miller Tabak, said the Russell 2000 should be positioned to outperform. Here are his reasons.

• The small-cap index is generally composed of domestically centered companies, which makes it particularly sensitive to moves in the U.S. dollar index.

• After a 14-month decline, the dollar index is finally starting to see a bit of a bounce. This comes on the heels of extremely oversold conditions, and sentiment has become quite bearish around the greenback.

• During this week's broad market decline, the Russell managed to bounce strongly off its 200-day moving average. That line proved great support for the index last year, so this resilience is positive on a technical basis.

• The technical picture, coupled with an expected bounce in the U.S. dollar, says the Russell is an index that outperforms going forward.

Bottom line: The Russell 2000 index could be well-positioned going forward as it appears to be holding up better than its large-cap peers amid a broader market sell-off.