Market Is At Inflection Point

Option Trading Strategist & Financial Writer • May 21, 2018 at 2:10 PM EDT

Small cap leadership also confirms investors are trading “risk-on”. The small cap Russell 2000 is disproportionately represented by energy shares which are exploding higher.

In the chart below you can see the Russell 2000 index diverging higher away from the S&P and Dow Industrials. Small cap leadership also confirms investors are trading “risk-on”.

The small cap Russell 2000 is disproportionately represented by energy shares which are exploding higher. Also note that smaller cap stocks are perceived to have less exposure to global events and benefit more from a strong domestic economy.

A tariff war and stronger dollar adversely impact larger companies that do much of their business overseas. If the large cap indexes move higher to converge with the Russell that would be an indicator of market prices returning to the highs. However if the Russell pulls back to converge with the other indices it would mean continued range-bound trading.

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