People walk by the New York Stock Exchange (NYSE) in lower Manhattan on October 02, 2020 in New York City.

Spencer Platt | Getty Images

In Monday’s blustery sell-off, the Dow and S&P 500 fell below an important trend indicator – but not the small cap Russell 2000.

That gives more heft to the belief of some technical strategists that small caps are signaling a broadening of market participation that should help take the entire stock market higher.

The S&P 500, Nasdaq and Dow all fell below their 50-day moving averages, important widely-watched near-term support levels. The S&P and Dow ended Monday below their 50-day moving average which is calculated by averaging the last 50 closing prices.

But the Russell 2000 held above its 50-day, a sign of strength.

“The point is no damage was done on this pullback, and we think the recovery story is in play. We’re expecting a broad market breakout. We expect participation to continue to broaden. Our broader theme is cyclical and beta and small caps have that,” said Ari Wald, technical analyst at Oppenheimer.

Originally published at CNBC

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