It was another good day for Small Cap stocks as the Russell 2000 added over 1% to bring it into a challenge of the June swing high. Just as the declines of the early part of last week were of lesser significance because of the broader trading range between 1,500 and 1,610; the same is true for Thursday's and Friday's gain. The one aspect which is interesting is the improvement in relative performance against the S&P. With money flowing back into Small Caps, the groundwork for a larger, secular rally is been put into place.

A much needed boost to Small Caps gave value buyers a shot in the arm as the Russell 2000 gained nearly 2%, returning it above 200-day and 50-day MAs. It was an important recovery which wasn't quite mirrored by peer indices, but such indices are in much better shape.

Sellers took a third day of selling out of the Russell 2000 and this weakness made its way to the S&P and Nasdaq. The selling is more problematic for the Russell 2000 because there is a genuine lack of conviction from traders wanting to pick up an index which is trading at a deep discount to its peers.

Options expiration skewed volume action but it was a relatively neutral day.  Only the Russell 2000 suggested a more bearish undertone existed in the market. The S&P is currently probing its April high so it's of no surprise to see a small 'gravestone' doji appear on this test. I would be happy to see a small consolidation handle (ideally holding the 50-day MA) as a preparation for a push to new all-time highs but don't be surprised if the market doesn't wait for this. This rally has merit with excellent relative performance and an accumulation trend in volume.