The major US equity indices have been rallying sharply over the past several weeks because of growing expectations that the US and China will agree to a phase one trade deal, which could pave the way for an eventual end to the damaging trade war.
The markets have also been supported by major central banks loosening their monetary policies, with the ECB and Fed restarting their debt purchases.
As a result, investors have been piling into equities, especially into large-cap US names such as Apple and Microsoft. Consequently, we have seen repeated new record highs for the S&P, Nasdaq and Dow.
However, the small-cap Russell 2000 index has not been unable to join the fun in the same way.
Well, not yet anyway.
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Judging by Monday’s breakout from the bull flag pattern shown on the chart, that has taken the index above old highs of 1600 and 1618, we could see fresh buying momentum in small caps going forward.
It remains to be seen however, whether the Russell will be able to surpass its old record high of 1745 set back in September last year.
In any case, the path of least resistance is clearly to the upside right now, although if the index fails to hold the breakout and we go back below the recent low at 1578 then in that case, the outlook would turn negative again.
