The iShares Russell 2000 ETF (NYSEArca: IWM) is higher by 4.5% over the past month, a performance that tops the S&P 500 by 60 basis points, but even with that recently bullish showing, the Russell 2000 could find itself in a tenuous technical position.
Investors have been shifting into small-caps as the asset category outperformed larger stocks. If the U.S. economy continues to expand, smaller companies may continue to outperform. In contrast, large-cap benchmarks, like the S&P 500, include more slow-growing multinationals, which may have seen weakened overseas revenue streams after the U.S. dollar strengthened.
Smaller companies are a play on the domestic economy. While previous economic reports have been less than appealing, economists expect the gross domestic product to accelerate in the second half of the year. [Mid-, Small-Cap ETFs to Focus on U.S. Growth]
“Last week the index looks to have made a reversal pattern (bearish wick) at the underside of rising channel. Was this an awkward kiss of resistance at, creating a reversal pattern? Sure could be.
For the Russell index to keep pushing higher (continue sending bullish signals), it first needs to climb back inside channel,” according to Chris Kimble of Kimble Charting Solutions.
Additionally, the buyback yield for small-caps – the dollar amount of repurchased shares divided by the company’s market cap – averages 1.5% compared to 2.7% prior to the crisis, according to Barclays.
Small-cap consumer discretionary and technology firms have been buyback leaders in that cap spectrum, extending a theme that has been seen over the past several years with large-cap share repurchasers. [Small-Cap ETF Differences are big Deals]
“Small caps would send a negative signal should further weakness take place under the 1,220 level,” adds Kimble.