“Golden Cross” Price Pattern Forming Small Caps

A MarketWatch article from earlier this month discussed the possibility of a “golden cross” price pattern to emerge in the Russell 2000 index, the benchmark of small cap stocks, which could lead to “more than a small victory for small-caps.”

“Many market technicians believe that when the 50-day moving average crosses above the longer-term 200-day moving average, this relatively rare golden cross marks the point where a shorter-term rebound morphs into a longer-term uptrend,” the article explains, noting that such an event appeared imminent.

The article reports that the Russell 2000 had enjoyed a boost along with its large cap peers but was off its September high of 1,740 while all three major benchmarks (The Dow, S&P 500 and Nasdaq) had exceeded the record highs they reached over the summer.

Small caps are often considered more vulnerable than large caps, the article explains, because the underlying businesses tend to have less bargaining ability with suppliers, less diversification with respect to revenue and location and are generally more highly leveraged relative to earnings. As a result, it adds, small cap share price moves “have come in fits and starts in recent months amid worries about a domestic economic recession, and concerns about trade tensions between the U.S. and China, which could deliver a wallop to the biggest, multinational companies as well as weakening global economic expansion.”