Small-caps showing signs of potential breakout – BTIG

The Russell 2000 Index (NYSEARCA:IWM) is attempting to break out of a seven-month downtrend, potentially signaling a significant shift in market dynamics, according to Jonathan Krinsky, chief market technician at BTIG.

The Russell 2000 (NYSEARCA:IWM) is down 5.2% year-to-date and has remained stagnant since January 2021, creating a frustrating situation for investors. “To say it has been a frustrating trade is likely an understatement for many,” said Jonathan Krinsky, chief market technician at BTIG.

The IWM, which has been trapped in a well-defined downtrend since last November, is now approaching a breakout point, according to Krinsky.

While there isn’t yet sufficient evidence to suggest small-caps will outperform larger indices, “the relative line is also close to a breakout,” potentially positioning small-caps to lead as the S&P 500 (SP500), (SPX) and the Nasdaq (COMP:IND), (NDX) “chop around more.”

Regional banks (NYSEARCA:KRE) and biotech (NYSEARCA:XBI) sectors represent crucial components of the small-cap index and are both currently at key inflection points, Krinsky said.

“If they can push a bit higher it would suggest important perhaps more durable breakouts,” he said, underscoring the significance of these sectors’ performance for the broader small-cap market trajectory.

Krinsky identified five stocks with particularly constructive charts that merit investor attention:

• Tutor Perini Corp. (NYSE:TPC) – has a “very strong momentum and relative strength.”
• Kiniksa Pharmaceuticals International (NASDAQ:KNSA) – shows “a fresh multi-month breakout.”
• Diebold Nixdorf (NYSE:DBD) – is “consolidating after its breakout.”
• Compass Minerals International (NYSE:CMP) – has “a long-term turnaround underway.”
• StoneCo Ltd. (NASDAQ:STNE) – is “a pre-breakout candidate.”

The potential breakout in small-caps could represent a significant shift after nearly two years of disappointing performance. With key sectors at critical junctures and several promising individual names displaying positive technical indicators, Krinsky suggested that small-cap investors may finally see relief from the extended period of underperformance that has characterized this market segment.