Small caps shot higher yesterday as the Russell 2000 Index (IWM) gained almost 3% outpacing the S&P 500 Index (SPX) on the day by 1.86%. The single day outperformance by RUT over SPX ranks in the 99th percentile with data going back to 1979. Another way to frame it is that less than 1% of trading days saw RUT outperform SPX by at least 1.86%. Despite the notable single-day performance by RUT, its proxy the iShares Russell 2000 ETF (IWM) maintains a fund score below the acceptable 3.0 threshold which has been the case since February of this year. IWM also shows little sign of improving against large caps as it’s been on a sell signal versus the S&P 500 Equal Weight Index (SPXEWI) since January 2022 and a column of Os since April 2021. However, IWM is 4.16% away from reversing into a column of Xs against SPXEWI which is something to watch out for through the rest of the year following such a strong single-day performance from small caps.

Getting back to the index itself, RUT is one box away from returning to a buy signal on its 20-point chart after giving a sell signal earlier in August. The small cap index trades in a positive trend but is near an area of heavy resistance around 2300. If 2320 can be taken out, there is little in the way of RUT returning to 2024 highs around 2450. It’s still unclear if overcoming nearby resistance will lead to RUT gaining near-term relative strength with a reversal into Xs on its relative strength chart vs SPXEWI. The weight of the evidence still strongly suggests staying away from small caps generally in favor of large cap exposure. Despite multiple years of lackluster relative strength, it’s important to monitor the possibility of changes in the future and to have a game plan if those changes do take place. For now, there is nothing actionable until small caps can prove their worth through consistent outperformance against other major market benchmarks.

While it is true that sector leadership has remained largely consistent in 2025, it can be important to keep an eye on the health of said leadership from time to time. After all, price will guide us to sectors that are moving in and out of favor, just like your tastebuds draw you to bright red strawberries in the summer and crisp apples in the winter. Recent research has touched quite notably on the “pulse” of market participation as larger names within the market look to have tightened their grip around upside action, so we will take today’s featured article to further that conversation; diving underneath the hood to judge sector participation as we move through August.

As discussed here, lower participation doesn’t always equal lower performance…. But it can be used as a guiding hand when it comes to where you want to be invested. A strong sector with strong participation suggests an advisor may be able to “throw a dart” at a list of actionable names. On the other hand, a strong sector with weak participation warrants further analysis into a more narrow environment, just like how you might inspect your berry container a bit more thoroughly in December than you would in June or July. The Technical Indicator Report page is the home base for participation studies across different universes.

The chart below details the overall change in bullish percent readings (percentage of the universe trading on a PnF buy signal) since the 2025 performance lows on 4/8. Do note that this date won’t necessarily line up exactly with each respective sector's participation low, but does offer an equal starting point for comparison sake. A few interesting points of note:

• Energy stands as the sector with the most overall participation gained, seeing 40% more stocks trade on buy signals. This hasn’t quite translated to overall performance though (more on that later).
• Consumer non-cyclicals & communication services saw the lowest gain in participation, but they hold respectively different pictures… largely in part to communication services and its overall resilience so far this year.
• Other current technical leaders like Technology and Industrials were other big participation gainers, furthering the idea that overall leadership trends continue to expand.

Continuing on, we can then look at overall relative performance between each sector’s respective cap weighted fund vs. that of their equal weighted fund over the same timeframe (4/8/25-8/12/25). Themes here are largely as you would expect (cap weighted options are outperforming their equal-weighted counterparts) but there are a few points of note.  

• Despite a relatively weak healthcare group seeing nearly 1/4th more participation, weakness from bigger names within the sector have hurt overall performance (think the likes of LLY, UNH, etc.) While we would suggest avoiding the sector as a whole right now, look outside mega-cap names where exposure is needed.
• On the other end of the spectrum, Technology and Communication Services saw their cap weighted representative best the equal weight option by >8%
  • Traditional Communication names have tailed off while more growth oriented areas have led the way. Focus here despite the headline participation reading being a standout.
  • While technology has largely broadened out (+30% to BP reading) more intense leadership has come from larger names around earnings.

Remember, you can also use individual relative strength charts to judge the representatives against each other. While the exact ideal scale will differ from sector to sector, the chart below details a 1% chart between tech representatives XLK & RSPT. After a largely unproductive sell signal in late 2022, this chart has favored XLK since 3/17/2023. Since that point, XLK has bested RSPT by just under 30%. While this is admittedly a cherrypicked example, keeping tabs on who is leading the charge forwards within a given sector can help fill out the overall picture within your portfolio.

Each week the analysts at NDW review and comment on all major asset classes in the global markets. Shown below is the summary or snapshot of the primary technical indicators we follow for multiple areas. Should there be changes mid-week we will certainly bring these to your attention via the report.

Remember, these are technical comments only. Just as you must be aware of fundamental data for the stocks we recommend based on technical criteria in the report, so too must you be aware of important data regarding delivery, market moving government releases, and other factors that may influence commodity pricing. We try to limit our technical comments to the most actively traded contracts in advance of delivery, but some contracts trade actively right up to delivery while others taper off well in advance. Be sure you check your dates before trading these contracts. For questions regarding this section or additional coverage of commodities email james.west@nasdaq.com.

Data represented in the table below is through 08/12/2025:

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