Chart of the Day - Monday, December 14th, 2020

Today’s Chart of the Day was shared on Twitter by Arthur Hill (@ArthurHill). It's a chart of the Small-Cap Russell 2000 ETF, $IWM, since its inception in 2000. Small-Caps have been sprinting full speed ahead in recent weeks. Arthur points out that $IWM is now more than 30% above its 200-day moving average, which the most extended it's ever been. In fact, there have only been two prior instances where $IWM was more than 25% above its 200-day moving average (2003 & 2009). Interestingly, both of those instances occurred as the broader market was recovering from a major bear market...sound familiar? Like many of the developments we've seen recently, the interpretation of this depends on your time frame. In the long-term, Small-Caps strength is constructive to the broader market outlook. In the short-term, Small-Caps are getting extremely stretched and could be due for some mean reversion. If you'd like some more food for thought on this - check out what happened after the Nasdaq ($QQQ) became this stretched in early September.