Russell 2K Initially Soared During The 'Trump Rally'; Is It Time To Buy Again?

The Russell 2000 index was one of the most notable winners in the early days of the "Trump rally" and soared 16 percent after the 2016 presidential election.

According to CNBC, the index gained as investors assumed President Trump's pro-growth and domestic-friendly policies would have outsized benefits on small-cap companies with a domestic focus rather than international large-cap players.

The iShares Russell 2000 Index (ETF) IWM peaked just above $140.86 in early March and was trading at $136.84 on Wednesday. Should investors buy the dip or is the trade over?

Avoid Buying The Dip

Erin Gibbs, S&P Global's equity chief investment officer, told CNBC the sentiment surrounding small-caps changed recently as many of Trump's proposed policies, such as tax reform and healthcare reform, have yet to be transformed into actual legislation and law

However, Gibbs suggested the recent pullback in small-cap stocks is within a "healthy" range and part of a short-term "risk-off" strategy, which also calls for avoiding riskier U.S. asset classes.

The Technicals

Jonathan Krinsky, MKM Partners' chief market technical analyst, thinks the Russell 2,000 is close to entering oversold territory.

He explained that over the past 15 years small-cap stocks actually perform the best in March and average a 3 percent gain historically. Meanwhile, small-caps are also showing various oversold indicators, including the greater number of stocks that have pulled back versus the number of stocks advancing.

The overall speculative positioning in small-cap futures have shifted from net long to net short, which according to the technician could pave the way for a move higher.

"You have bullish seasonality, oversold readings and positioning is probably a tail wind at this point," Krinsky said. "So we think you should be able to head higher on small caps into the end of the month."

See Also:

One Of The Top Ranked Financial Advisers Thinks Stocks Can Rise 50% - But Don't Call It A 'Trump Rally'

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