Small Caps (Russell 2000) started diverging against the broad market last year --falling more than the large caps (S&P 500). The table below compares the performance of the S&P against the Russell over the past 6 months.
Small caps have been almost twice as week as the broad markets over the past 6 months. We feel they are at an important price point at (1) below.
We applied Fibonacci retracement levels to the 2011 lows/2015 highs (Blue Fib levels) and applied it to the 2009 lows/2015 highs. The 50% Fib level of the 2011 lows and the 38% Fib level of the 2009 lows are coming together in a narrow price zone, which was almost hit at (1) Wednesday morning.
Small Caps have been the weak link and we feel what they do at this dual Fib retracement zone at (1) is very important. It would be a positive if the weak link would find support at (1).
If dual Fib does not hold at (1), rising channel support tied to the 2009 lows comes into play near the 800 level.
We think it's important to keep a close eye on the “weak link” at this price zone, as a rally in small caps here is almost needed if the broad market is to stop falling.