LIVE MARKETS Small caps: Ready to demand some attention again?

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SMALL CAPS: READY TO DEMAND SOME ATTENTION AGAIN? (0900 EST/1400 GMT)

Small caps have certainly been out-of-favor of late. From its November 8 record intraday high to Wednesday's intraday low the Russell 2000 index (.RUT) collapsed more than 13%.

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It's been a rough go for small caps vs large caps for most of 2021. For example, despite the RUT's record highs in November, the RUT/Dow Industrials (.DJI) ratio actually peaked in early-February as it approached its 2014 high:

RUT12162021

The RUT now finds itself trading below both its 50 and 200-day moving averages (DMA), and on Tuesday it hit its lowest level relative to the DJI since November 2020.

That said, despite an October scare which saw the 50-DMA skirt the 200-DMA by just decimals, this closely-watched intermediate-term moving average has been above the longer-term moving average since August 2020. There are around 34 points separating them at this time.

Additionally, despite the fresh low relative to the DJI, it was just marginal, and with Wednesday's rally, the ratio ticked up.

Thus, just ahead of the time when market participants may look for a "January effect", when small caps tend to outperform large caps, the RUT appears to be at an important juncture. read more

If it can hold its summer 2021 lows in the 2,122/2,107 area, (Wednesday's low was at 2,130.9063), and reclaim its 50-DMA, now around 2,293, there could be room again to challenge its November high, at 2,459, and even the resistance parallel, which now resides just over 2,500.

Conversely, continued RUT weakness which takes out its summer lows, leads to a dead-cross (50-DMA crosses below 200-DMA), and sees the RUT/DJI ratio break even lower can suggest potential for a much greater collapse. This, especially, given that the RUT's rising 200-week moving average, which could be a strong magnet, is now around 1,725.

(Terence Gabriel)

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Terence Gabriel is a Reuters market analyst. The views expressed are his own

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