The market had some interesting statistics for us on Thursday.
Let's begin with a chart I showed you over a week ago. At the time I noted how the Russell 2000 had been such an underperformer relative to the big caps since early November. So much so, in fact, that it was literally a one-way street down on the chart of Russell 2000 fund (IWM) to S&P 500 fund (SPY) on the chart. I even remarked that it was surprising, considering this was the time of the year (November to March) that is supposed to be the best six months for small caps and yet, they had been awful.
This week, small caps have done better than large caps. Oh yes, we had a blip in early November and another in late November, but both of those occurred during the context of a multi-week rally in the market. That is not the case now since now we're heading down and have been for a few weeks.
But you can really see it when we take a look at IWM relative to the QQQ. That is some turnaround this week, isn't it? And if you squint really hard, you can see that Thursday this ratio made a minor higher-high than late November. I can wait, while you get the magnifying glass!
This doesn't mean the small caps will continue their outperformance, but when we get a change where a group that has been acting poorly and has been leading on the downside stops acting so crummy and stops leading on the downside, I take notice.
We can even see it in the number of stocks making new lows. It's not great, but at least so far the peak new lows for Nasdaq arrived on Monday with 535 new lows. Thursday's lower-low in the Nasdaq Composite did not bring another increase in new lows (this usually goes hand in hand when the Russell is doing better).
Nasdaq's lows in October were right around the 10320 area, so with the close on Thursday at 10313, we're in the area and there are far fewer new lows than there were in early October when there 1,000.
There was some minor improvement on the sentiment front as well. The National Association of Active Investment Managers (NAAIM)'s Exposure fell from 71 a week ago to 39 this week. I'll call this level neutral where I had said a week ago 71 was too high.
With each passing day, the intermediate-term indicators inch -- they only inch there -- toward an oversold condition, but they are not there yet. So all I'm looking at here is still a short-term oversold rally.
I still think this rally, should we get it, will be choppy, although I did not expect to give back so much of Wednesday's rally on Thursday but the market had other ideas.
Wishing all who celebrate, a very Merry Christmas!
