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The Russell 2000 Holds Clues To This Market

The Russell 2000 Index (IWM) was the biggest tip off that there was something wrong with this stock market. After all, this important index topped out in August 2018 and was never able to make a new high in 2019 or in 2020. Traders and investors should remember the Russell 2000 Index represents 2000 small capitalization companies in the United States. So when this index does not outperform the other major stock indexes such as the Dow Jones Industrial Average (DIA) and the S&P 500 Index (SPY), it is a warning of potential problems ahead for the economy. We all know what has happened regarding the coronavirus pandemic, so watching the Russell 2000 Index (IWM) is very important at this time.

It should be noted that the S&P 500 Index (SPY) has already retraced 50% of it’s declines from the February 19th top to the March 23rd, 2020 lows. The Russell 2000 Index (IWM) has only recovered about 0.382 from the February 2020 highs to the March 2020 lows. This tells us that the Russell 2000 Index (IWM) has been lagging since the markets have bounced. If the IWM starts to show leadership it could be an indication that the recovery is really underway. When you think about it, small businesses have been shut down for over a month right now, so how well could they do? If this major area of weakness starts to show leadership it will be very encouraging for the markets and also the economy. The bottom line, the Russell 2000 Index (IWM) holds a lot of clues to this market.

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