Small caps just had their best week ever.
J.C. O’Hara, chief market technician at MKM Partners, sees trouble ahead for the group.
“I’m just a little less optimistic about the outcome if we look out another few weeks, another few months for small caps. Obviously we’re seeing some outperformance in the last few days, and that’s to be expected,” O’Hara said on CNBC’s “Trading Nation” on Wednesday.
O’Hara points out that small caps also rallied hard in the stretch after the 2009 lows and December 2019 lows.
“If we look at the ratio of the Russell 1000 to represent larger cap names to the Russell 2000, if you’re small cap, we’ve seen a 15-year base, and that ratio has actually broken out at the beginning of this year in favor of large caps. So, to me, this message is powerful. This breakout suggests, in my opinion, that large caps will continue to see momentum here,” said O’Hara.
John Petrides, portfolio manager at Tocqueville Asset Management, is more bullish toward the small caps so long as credit markets stabilize.
“The rally in risk assets, particularly small caps, is a function of the actions taken by the Federal Reserve a couple of weeks ago,” said Petrides during the same segment. “If we feel comfortable about the credit markets because of the actions taken by the Fed and by the government on the fiscal side then it’s not overly surprising that small caps are rallying here.”
The IWM ETF bottomed out on March 23. Since then, it has risen 27%.