The breakout to a one-year high in the Russell 2000 (RTY) has many wondering if the small cap strength was a sign the market should just ramp higher despite the extended condition and increased optimism.  As we mentioned in our “What is” note this morning, we continue to expect a minor and temporary interruption in the equity market upside based on our key tactical indicators.  We also believe any 2-5% correction should be aggressively used as an opportunity to add exposure to equities.

Our “stats dude” answered the question on whether the new 52-week high in the RTY should act as a catalyst to the S&P 500 (SPX).  The study below (Figure 1) showed that a breakout to a new high for the first time in a year is an excellent long-term signal, but is a sign of exhaustion over the near-term. In fact, since 1979 we would observe the following:

  • There has been a median loss of 0.9% and 0.5% two weeks and a month later, respectively.
  • There has only been one gain over the past 20 years two weeks and a month later.  A rise of just 0.2% one month out in 2016.
  • Outside of 2002, the six and twelve month gains are FANTASTIC.

Our message remains – no need to chase the upside, but we absolutely stand ready to add exposure into any interruption in the upside.

Figure 1 – RTY breakout reinforces buying any pullback in the SPX


Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expensesAll data points are sourced from  as of 11/26/19 unless noted otherwise.


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