Smallcap action has been poor lately. Typically you would like to see smallcaps offering upside leadership during a rally. They certainly have not been doing that. Wednesday’s smallcap underperformance was quite outsized and I decided to look at other pullback scenarios where the RUT underperformed so badly. I devised the following study.
Instances are very low, which makes it difficult to generate meaningful expectations. But somewhat surprisingly results could not be any more bullish. When I looked at the individual instances I noted that four of the six registered 2%+ gains over the next 3 days. Perhaps the smallcap downdraft is exhausting itself and the market can manage to rally as it has in the past.