NASDAQ AND S&P 500 HIT NEW RECORDS -- RUSSELL 2000 ISHARES HIT 52-WEEK HIGH AND HAVE BREAKOUT DAY -- LED BY SMALL CAP GROWTH ISHARES THAT ARE DOING THE SAME -- STRONG HEALTHCARE SECTOR MAY HAVE A LOT TO DO WITH SMALL CAP BREAKOUTS
RUSSELL 2000 HAS BREAKOUT DAY...Stocks around the world are off to a strong start to the week. The Nasdaq and S&P 500 are hitting new records; while the Dow isn't far behind. Most stock sectors are also rising led by technology, healthcare, cyclicals, industrials, and financials. A couple of those are hitting new records; with the others not far behind (more on that shortly). The most impressive performance, however, is coming from small cap stocks which are having a breakout day.
Chart 1 shows the Russell 2000 iShares (IWM) surging 2% today and trading decisively above their highs for the year (black circle). That measure of small cap stocks is trading at the highest level in thirteen months. Smaller stocks started to rebound during September and October and have been playing catch-up to larger stocks since then. The IWM/SPX relative strength ratio in the upper box bottomed near the start of September and has done better since then. Previous messages have suggested that more optimism on the U.S. economy starting in September (along with higher bond yields and steeper yield curve) attracted money into domestic small stocks which are more dependent on the economy. One small cap group in particular is leading today's breakout.
RUSSELL 2000 GROWTH ISHARES ALSO BREAK OUT...Small cap growth stocks are leading today's Russell 2000 breakout. Chart 2 shows the Russell 2000 Growth iShares (IWO) gaining nearly 2.5% today to achieve a bullish breakout of its own. Small cap value stocks are also rising, but not as far or fast. Chart 3 shows Russell 2000 Value iShares (IWN) having a strong day, but not yet in breakout territory. Which brings us to what's likely leading today's small cap growth breakout.
HEALTHCARE IS BIGGEST PART OF SMALL CAP GROWTH...Financials are the biggest part of the Russell 2000 and have played a leading role in its recent upturn. With financials hitting another record today, that's still the case. The second biggest part of the Russell 2000, however, is healthcare; its weighting of 17% puts it just behind financials at 18%. Healthcare, however, is the biggest part of the Russell 2000 Growth iShares (29%) which is leading today's small cap breakout. The IWO is also getting help from industrials (19%) and technology (18%) which are second and third in size. But the resurgence in healthcare stocks which recently broke out to the upside and are hitting a new record again today may have a lot to do with this week's small cap breakout.
Chart 4 shows the Health Care SPDR (XLV) hitting another record today making it the day's second biggest gainer (behind technology). Financials are the only other sector to reach a new record. Its relative strength ratio (upper box) appears to be on the verge of an upside breakout of its own. Although all healthcare groups are gaining ground, biotechnology is the day's XLV leader.
Chart 5 shows the Dow Jones Biotechnology Index climbing to the highest level in more than a year. It recently cleared its 2019 highs and a major resistance line extending back to early 2018 to turn its trend upward.
