The Russell 2000 Index (RUT) outperformed the S&P 500 Index (SPX) by almost 2% Tuesday (8/12).

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.