Friday, December 19, 2008

Week in Review: Small Cap Outperformance

While the large cap stocks remained range bound for the week (SPY; top chart), unable to sustain a rally above 900 in the S&P 500 futures, small cap stocks benefited from end-of-year buying (IWM; bottom chart) and closed near their highs for the week. Those small cap highs were also two month highs for the Russell 2000 Index.

Friday was the fourth consecutive trading session in which new 20-day highs exceeded 1000 among NYSE, NASDAQ, and ASE exchanges, despite the choppy trade in the large cap indexes. Small caps contributed to that strength; according to Decision Point, 73% of S&P 600 small cap stocks were trading above their 20-day moving average, compared with 69% of S&P 400 midcaps and 64% of S&P 500 large caps. While the advance-decline line specific to S&P 500 large caps is below its peak from the week of December 7th, we are at multi-week highs in the advance-decline line specific to S&P 600 small caps.

While I have found the inability of the S&P 500 Index to stay above 900 to be disappointing, the underlying strength in the broader market has limited the downside.