It is a make-or-break time for small-caps. Having been under pressure since last November’s peak, the Russell 2000 has defended must-hold 1700, closing last week just under 1900, a takeout of which will bolster odds of more strength.

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The Russell 2000 peaked last November at 2466, barely eclipsing the prior high of 2459 posted three years ago in November 2021. It then proceeded to drop all the way to 1641 by June 2022; that low was successfully tested in Octobers of 2022 and 2023, ticking 1642 and 1634 respectively. This represented a slight breach of horizontal support at 1700 but it held in the end.

For nearly two years through December 2023, the Russell 2000 was rangebound between 1700 and 1900 before breaking out; this culminated in last November’s new high. From that high through the low of 1733 reached on the 9^th this month, it tumbled 29.7 percent, but once again 1700 has held. Last week, the index added 1.1 percent to 1881 – essentially right at dual resistance made up of 1900 horizontal and a rising trendline from March 2020 (Chart 1).

Last week, small-caps outperformed large-caps by a wide margin, with the S&P 500 down 1.5 percent and the Nasdaq 100 down 2.3 percent. This gives small-cap bulls an opportunity to continue to press higher and rally toward 2000 and then on to 2100.

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Should this scenario come to pass, this would have taken place at a time when shorts are reducing their bearish bet.

As of the end of March, short interest on IWM (iShares Russell 2000 ETF) fell 7.2 percent period-over-period to 83.3 million. This was a four-month low. At the end of February, short interest was 9.1 million. Unfortunately for the bulls, the reduction in short interest did not help the price as the ETF dropped 6.9 percent in April.

On April 7-9, IWM found lows in $172s – and the Russell 2000 in 1730s – before rallying. For continued strength, IWM short interest is not elevated enough to provide sustained push higher.

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Should small-caps rally, this would have also come at a time when there are a lot of question marks around earnings estimates for this year and next.

In both 2023 and 2024, S&P 600 companies suffered contraction in operating earnings, down 14.2 percent and five percent respectively to $65.14 and $61.86. The sell-side at one time was way optimistic, modeling in $111.23 for 2023 as of June 2022 and $105.68 for 2024 as of March 2023. That optimism never came to fruition. It is nearly guaranteed their estimates for both this year and next will meet the same fate.

As of last Tuesday, these analysts are expecting these companies to ring up $83.54 and $100.43, which will represent growth rates of 35.1 percent and 20.2 percent, in that order. This is nothing but pie in the sky. In fact, in keeping with past practices, estimates for both 2025 and 2026 are already getting revised downward. As of May last year, 2025 was expected to bring home $102.88; similarly, as of this February, 2026 stood at $106.48. These estimates are not done going down. It remains to be seen how low these numbers go as tariffs reverberate through the economy and how much is already in the price of IWM/Russell 2000.

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