The Small Stock Russell 2000 ETF (NYSE: IWM) has quietly closed the performance gap with the big cap stocks, a potentially positive sign for the stock market.



Chart Courtesy of StockCharts.com

As the S & P 500 has struggled to rise above 1120 the small stocks have been making up ground. The Russell 2000 index closed trading on 12-21 just five points below its recent high of 623.94, meaning that the small stocks are now acting just about as well as the large cap stocks.

That means that as the uncertainty of the current political climate has been rising, value investors have likely been adding to positions in the small cap arena.

And at the center of the mix is the dollar. Small companies tend to do better with a strong dollar since their sales are less dependent on international business and more on domestic.

The strong dollar is also starting to weaken the potential future sales of large multinational corporations, such as Procter & Gamble whose shares have been sagging of late.

New highs in the small stocks would be very bullish for the overall market and would likely signal that big money is starting to make big bets on a dollar bottom. The latter point is huge for the market in 2010.

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