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The surprising place where investors are putting money now

The surprising place where investors are putting money now

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The surprising place where investors are putting money now

The surprising place where investors are putting money now
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Here's a fascinating explanation for why stocks are going higher

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Here's a fascinating explanation for why stocks are going higher

Are small-cap stocks about to make a big-time comeback?

Last week, the ETF tracking the large-cap S&P 500 index (which trades under the ticker symbol SPY) saw outflows of more than $13.3 billion, one of the largest outflows all year. Meanwhile, the ETF tracking the small-cap Russell 2000 index (ticker: IWM) saw inflows of nearly $422 million, one of its largest weekly inflows in 2014.

What makes this interesting is that the Russell 200 has significantly underperformed the S&P 500 so far this year; while the S&P 500 is up 4.8 percent since January 1, the Russell 2000 is down 1.9 percent.

So do the recent fund flows indicate that things are going to turn up for the small-cap index relative to its large-cap rival? Gina Sanchez, founder of Chantico Global, believes the data say that and more.

(Watch: Meet the most beaten-down large cap stocks)

“It’s giving you a view into the psyche of investors,”  said Sanchez, a CNBC contributor. “If investors were really ready to capitulate and dump everything, they would have dumped small caps as well. This suggests to me that investors continue to be bullish, and continue to be optimistic about the recovery and about the economy in general.”

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Richard Ross, global technical strategist at Auerbach Grayson, says that money is flowing into small-cap stocks as a result of geopolitical concerns.

“The Russell [is] largely a pure play on the U.S.,” said Ross. “These are smaller cap companies, with not a lot of foreign exposure, and also not a lot of exposure to the dollar… It’s not a surprise that people are moving back into the small caps here, looking for a little oasis amidst all of this global turmoil.”

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While Ross sees the Russell 2000 index remaining in a trading range between 1,082 and 1,200 in the short term, it’s the long-term chart that gives him some pause. The key to the Russell 2000 is its 150-week moving average, according to Ross. It currently falls at around 945.

(Watch: Stocks squeeze out gains as investors eye geopolitics, data)

“Keep an eye on 1,082,” said Ross, a “Talking Numbers” contributor. “[If] we get a break below there, that’s your confirmed sell signal. You cannot own small stocks on a break below 1,082. It could set you up for a more sinister decline down to that moving average around 945. That’s a lot of points of downside.”

To see the full discussion on the Russell 2000, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.

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