Why small cap weakness could be a short-term setback?

Small cap stocks may be on the cusp of a turnaround.

According to Fairlead Strategies market technician Katie Stockton, Russell 2000The poor performance so far this year is likely to be a setback in the near term.

“We’re kind of confident that we’ll see small caps outperform. Maybe they won’t outperform strongly. But they’ll have a better year after a very tough year because breadth was very weak,” the firm said. The founder and managing partner told CNBC’s “Fast Money” on Wednesday.

The Russell 2000 is off two percent so far this year. meanwhile, S&P 500, dow And nasdaq 100 Has reached a new all-time high.

Stockton believes the decline of the Russell 2000 has shaken investor confidence in small caps.

“We want to reignite that confidence as we have seen an initial reaction to the short-term oversold situation – that is iwm Or the Russell 2000 ETF,” she said. “With that, our relative performance has improved: The long-term downside momentum has improved compared to the S&P 500.”

The Russell 2000 is coming into the fourth quarter on a strong note. It increased by about 14% in that period.

“For IWM, we saw a huge trading range breakout in Q4,” Stockton said. “This is something we anticipated as there were some positive divergences in momentum as it moved sideways with a lot of volatility.”

cnbc Anna Gleason Contributed to this article.