The Case for Small Caps: Technicals, Rates, & RS Align

Core Viewpoint - Small caps are experiencing a breakout due to lower interest rates on the horizon, contrasting with their previous underperformance compared to tech stocks [1] Group 1: Technical Analysis - The Russell 2000 Index ETF (IWM) is attempting to break out of a four-year base structure that began in October 2021, with historical breakouts resulting in gains of 30% or more over the next 1-2 years [1] - Technical targets suggest that IWM could reach approximately $300, which is 19% higher than current levels, based on Fibonacci extensions [6] - An alternative target calculation indicates a potential move to around $312 by adding the difference between the high and low of the base to the breakout [8] Group 2: Relative Strength - IWM is showing relative strength compared to the Nasdaq 100 Index ETF (QQQ), having retaken recent highs while QQQ remains below them, indicating a potential leadership role for IWM in the US equity market [9] Group 3: Performance of Components - Top holdings within IWM, such as IonQ (IONQ), Oklo (OKLO), and Credo Technology (CRDO), are performing strongly and may contribute to the breakout [11] Group 4: Market Conditions - After years of lagging behind large-cap peers, small caps are positioned for a significant upward movement, supported by a multi-year base, improving technical signals, relative strength, and favorable macro conditions [12]