Eoin Treacy's view The outperformance of the Russell 2000 Index has this year's standouts to date. Small caps are generally sensitive to growth in the underlying economy and interest rates continue to present a benign environment. The Index (P/E 19.76, DY 1.62%, P/B 2.26) moved to a new all-time high in January and has held a progression of higher reaction lows since. While valuations can no longer be considered cheap, a break in the progression of higher reaction lows would be required to check the medium-term uptrend.

I thought it might be instructive to look at other small cap indices on a commonality basis for clues to the condition of the global sector.

Japan's 2 nd Section Index (P/E 16.77, DY 1.66%, P/B 0.76) of small cap stocks completed a four-year base in the first week of January and soared to 3500, it has been consolidating that move since May but has returned to retest the peak and a sustained move below 3000 would be required to question recovery potential.

According to Bloomberg, the UK'S AIM Index (DY 1.17%, P/B 1.49) has a suspiciously low P/E of 2.93 which is probably a result of recording a zero P/E for some constituents but continuing to include them in the average. The Index has rallied back to test the 800 area since the late June low and some consolidation of the powerful three-month move is looking increasingly likely.

Despite a six-month interval in 2011 when it traded higher, the MSCI Europe Small Cap Index (P/E 58.32, DY 2.53%, P/B 1.77) spent most of its time between 2010 and 2012 ranging below 250. It broke above that level in January, found support in the region of the 200-day MA from late June and broke out to new almost six-year highs two weeks ago. While becoming increasingly overextended, a sustained move below 275 would be required to question medium-term scope for additional upside.

Following an impressive rebound in 2009, the Dow Jones Asia/Pacific Small Cap Index (P/E 33.33, DY 2.29%, P/B 0.94) has been mostly rangebound since 2010. It is currently rallying back towards the upper side and a sustained move below 140 would be required to question medium-term scope for continued higher to lateral ranging.

The Australian Small Cap Ordinaries Index (P/E N/A, DY 3.18%, P/B 1.5) has been ranging lower since early 2011 and has returned to test the progression of lower rally highs and the 200-day MA over the last few months. It will need to hold above the 2100 area to demonstrate a return to demand dominance beyond the short term.

From the above indices we see that the Russell 2000 has by far the highest Price/Book ratio of any major small cap index. Nevertheless, commonality is generally positive and a substantial number of small cap indices have posted impressive breakouts. While short-term overbought conditions are evident, breaks in progressions of higher reaction lows would be required to question medium-term demand dominance for the leaders