After years of wandering in the wilderness, not just David, but David’s little brothers, have prevailed over the world’s Goliaths in the past few days, smiting them into bits and pieces.

The battle stepped into high gear today, with the Russell 2000 (IWM) up 1.07%, even as the US stock market as a whole (VTI), dominated by a minority of macrocaps, closed down by -0.36%. On this overall down day, the smallest of the small, the Russell Microcaps (IWC) are up a smashing 1.37%.

The chart above shows the performance of IWC relative to VTI, the return of microcaps in terms of the broad US market. It been almost all downhill for the past year, with a sharp reversal in the past few days.

Likewise, our Model Income Portfolios, being substantially flatter than the cap-weighted indices, have, after underperforming on a price basis in recent months, pivoted and outperformed in recent days.

In the very near term, this leaves small and micro cap stocks overbought and vulnerable to reversal, but this nevertheless represents a powerful broadening out that often prefigures stronger performance of the market as a whole. For more validity, it needs to be confirmed by a still missing outperformance in XS (nonUS) stocks. So for now, bears can still take heart that its signaling validity is limited to the very near term.

It bears watching.