Is Small-Cap Rally Getting Extended?

*This post was originally published on our Tumblr blog on October 4 — and the content covered in our premium 10/4 RUT-RVX Standoff post as well as our Daily Strategy Session videos all week.*

The Russell 2000 Small-Cap Index is hitting a couple of key Fibonacci Extensions of recent declines.

The current inexorable stock market rally has folks wondering where it will at least take a breather, if not put the breaks on. The small-cap segment of the market has been particularly relentless, with the Russell 2000 (RUT) up 8 days in a row, 15 of the last 18 and 24 of the last 30. Based on one piece of charting analysis, however, it is now reaching a level that may finally produce at least a pause in its breathless advance.

We’ve discussed Fibonacci Extensions in the past on several occasions. As a refresher, these Extensions mark various magnitudes of potential price support or resistance following range breaks, based upon the Fibonacci mathematical sequence. The 161.8% is perhaps the most important Extension, based on the sequence. It signifies a move of 61.8% of the former range – out of the range.

For example, in this case, we see the Russell 2000 now reaching the vicinity of the 161.8% Fibonacci Extensions of the following noteworthy recent declines. That is, the RUT is now above the top of the declines by a margin equal to approximately 61.8% of the respective ranges of the declines:

  • The 161.8% Fibonacci Extension of the 2015-2016 Decline ~1514
  • The 161.8% Fibonacci Extension of the recent July-August Decline ~1516

Here’s what it looks like on the chart.

So, will the small-cap rally put on the brakes here? There is no guarantee that it will. However, this is as good a spot as any, in our view, for the index to at least take a temporary respite – particularly given the multiple levels aligned in the same vicinity.

Do we think the rally is over? No – it just may be a bit extended in the near-term, though.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. Considering what we believe will be a very difficult investment climate for awhile, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!


Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.