By C. Theodore Hicks II, CFP, CKA, CMT
1/ Small Caps
2/ Advancing vs. Declining
3/ Indian Small-Caps
4/ US vs. India
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1/
Small Caps
For the last two years, small cap US stocks have been stuck in a range as demonstrated by the blue gray box. Many (yours truly included) celebrated in late December when small-caps were finally able to emerge from this range.
We celebrated again in late February when it popped back out the range a second time.
Up until April 10th, small-caps were struggling but their 50-day moving average (red line) was serving as support. That support gave way on April 10th.
More recently, small-caps were able to find support just above their 200-day moving average. While it’s never fun to drop below the 50-day, it did provide an opportunity to test the 200-day moving average. Since small-caps (so far) passed the test does lend some confidence in the days ahead.
2/
Advancing vs. Declining
(IWM). Instead of showing the percentage of the Russell 2000 that is trading above the 200-day moving average (Chart 1), Chart 2 is showing the number of stocks within the Russell 2000 that are advancing (green bars) each day versus declining (red bars) each day.
Generally speaking, during corrections and recovery rallies, we are looking for signs. Tuesday morning, on my LinkedIn page I showed how, during the recent correction, we were actually witnessing an increasing number of stocks that were advancing. Naturally, the opposite was true for declining stocks. What does this tell us?
Well, if we see an increasing number of stocks that are going higher while the index itself is going lower, that is a sign that the move down is likely to be short-lived.
Full disclosure: Chart 2 is not updated to reflect Tuesday’s data. But, based on what I’m seeing elsewhere, I believe Tuesday’s participation was broad – meaning I believe we saw more advancing stocks than declining stocks. I will post an update to this chart on my LinkedIn page shortly before or after this newsletter is published – but we go to “print” before some calculations are completed.
3/
Indian Small-Caps
On the left, I am showing a division spread chart. This chart simply takes one ETF and divides it by the other ETF. The resulting line chart then points to the stronger of the two positions. For this division spread chart, I have the US iShares Russell 2000 divided by the iShares India Small-Cap ETF (SMIN). The line’s slope is down thereby pointing to the denominator. Therefore, if you want Small-Cap exposure, you might want to look at the India Small-Cap sector.
A quick peek of the daily candle chart for SMIN is on the right. Here we can see that Indian small-caps are indeed breaking out. Were you to zoom out of the chart, we would see that this ETF is at all-time highs. Even better, SMIN had a great close yesterday, closing at the session’s highs. That is a strong sign.
4/
US vs. India
If we were to do this same analysis of the S&P 500 relative to the iShares India ETF (INDA), we will see that these two country ETFs are more finely balanced as evidenced by the sideways trend to the division spread chart.
However, that does not diminish the attractiveness of the India ETF as it has recovered well and appears to be creating a nice set-up, potentially leading to a breakout.
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Originally posted 24th April, 2024
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