Year-to-date, the Russell 2000 has lagged the S&P 500 by almost 8%, a fairly wide divergence. That disparity has a few investors concerned it may be a sign of weakness to come in the broad markets. But an interesting technical development highlights an important near-term intersection of time and price.
The chart below takes a technical perspective of how bulls and bears may be looking at small caps. And perhaps that's why they've endured so much volatility this year.
- Bears like this: Back in early March the Russell 2000 came upon a 14-year resistance line. Since then, the Russell is down 3%, while the S&P is up almost 8%.
- Bulls like this: 6 weeks ago small caps hit a rising 5-year support line and have moved higher since, moving in sync with the broad market.
As you can see, these two support/resistance lines seem to have impacted small caps over the past few months as they have mostly chopped back and forth between these lines.
The bottom line, here, is that the Russell 2000 is in a tight technical jam that looks like it will resolve soon. Whether you are bullish or bearish small caps, an interesting technical intersection awaits the small caps.
And it could pay to follow the coming breakout/breakdown.