Though U.S. indices kicked off the week mixed, small caps by way of the Russell 2000 (RUT) were among those to remain positive (albeit very slightly) and continuing positive action from last week. As discussed in Friday’s feature in the Daily Equity Report, small caps have been among, if not the best performing of the size groups during 2026. While not handily outpacing its large and mid-cap counterparts, small caps have likely been a part of client portfolios. Given the performance of small caps, we will take a look under the hood at recent leadership from a sector standpoint through a relative strength lens.

The relative strength matrix below compares price action of the nine Invesco small cap sector ETFs against each other in order to identify which sector funds are showing leadership, while also showing what sectors should be avoided. Given the action seen within the broader energy sector to kick off 2026, its no surprise to see the small cap energy matrix rankings mirror the broader NDW DALI Sector Rankings with energy as the top sector from a long-term leadership perspective. With the technology and industrials ETFs ranking in second and third, the small cap matrix similar mirrors DALI from a long-term RS perspective. When examining the short-term RS (column of Xs), technology and industrials exhibit superior near-term relative strength against the majority of the other ETFs within the matrix, while energy currently maintains the lowest X ranking with zero RS charts in a column of Xs when comparing to other small cap sector ETFs in the Invesco lineup.

Given the current RS picture among the small cap sectors, below highlights the current technical characteristics of the three aforementioned sector representatives.

Invesco S&P Small Cap Energy ETF (PSCE) – PSCE has maintained a positive trend since August 2025 and a buy signal since October of last year. After giving a third buy signal in January, the fund continued higher in February and March, reaching a multi-year high at $63 before pulling back to kick off April. That pullback to kick off April while other sectors have rallied – some significantly – in comparison has provided enough dispersion to lead to the ETF to fall in X ranking within the Invesco Small Cap Sector matrix shown above. Additionally, the market RS chart comparing the ETF to the S&P 500 Equal Weight Index (SPXEWI) reversed into Os on 4/14, highlighting that near-term laggard stance. Although the near-term RS picture is out of favor for PSCE, the long-term trend picture continues to maintain. Last week’s action brought the chart back to a column of Xs, while yesterday’s trading brought the chart above $62 and just one box below the March rally high. Near-term support currently lies at $56, while the bullish support line sits at $43.50 on the default chart.

Invesco S&P Small Cap Information Technology ETF (PSCT) – PSCT has maintained a positive trend since May 2025 and returned to a buy signal earlier this month. The past couple of weeks’ worth of trading has carried the fund higher, leading to a new all-time chart high at $74 during Friday’s (4/24) trading. As highlighted above, the recent rally within technology has brought near-term RS to favor the sector, again matching the superior long-term RS that has been sustained since the late stages of 2025. This week’s trading has seen the fund pullback slightly and it is now on the threshold of actionable territory at $70, while a further pullback to the upper $60s would constitute healthy chart action. From here, prior resistance in the mid $60s may be seen as initial support, while additional support resides in the $57 to $58 range.

Invesco S&P Small Cap Industrials ETF (PSCI) – PSCI has maintained a positive trend since July 2025 and returned to a buy signal earlier this month. Action in recent weeks has witnessed the fund rally through the $160s and above $172 on the chart, just a few boxes below the all-time chart high from February at $178. PSCI has maintained superior long-term relative strength against the market, as defined by the S&P 500 Equal Weight Index (SPXEWI), since late 2023 and positive near-term RS since August of last year. Among the three small cap sector funds discussed, PSCI is the one that could be considered at its current chart position or on a pullback to the lower $160s. Initial support lies at $150, while additional resides at $140.

A possible solution for those pondering how to best navigate the small cap space is the Invesco Small Cap Sector Model (POWERSMALL), which seeks to maintain exposure to the top three sectors within the nine funds shown in the matrix above and currently holds the three ETFs discussed above. Year-to-date, the Invesco Small Cap Sector Model has gained 22% through Monday’s (4/27) close and has outperformed the Russell 2000 (RUT) by more than 10%.

There has been a massive proliferation of option-related ETFs over the last several years. Income, hedged equity, buffers, and defined outcome ETFs continue to see greater popularity as they offer more elegant solutions to common portfolio needs than the equity/fixed income split that became so common. Focusing on option income ETFs, products have become a bit more elevated now that active management within ETFs is allowed. However, they still tend to mostly focus on maximizing income distributed back to investors by writing at-the-money calls. The active management component has helped in how these positions are rolled and more thoughtful strike selection. Nonetheless, most covered call products still focus on producing most of their total returns from the monthly options they sell. Fortunately, Nasdaq acquired Volos, a company that has institutional grade back testing capabilities of options strategies. Starting with a basic comparison between holding SPY and an at-the-money covered call strategy on SPY (SPY Covered Call ATM), we can clearly see the cost of a covered call strategy over the last 21 years.

When we dig further into the two strategies, annualized returns for SPY vs SPY Covered Call ATM are 11.18% and 7.16%, respectively. Some may say, of course the returns are worse for the covered call strategy, but the volatility is lower. That is true. Annual volatility for SPY Covered Call ATM is 13.35% and its max drawdown is -36.62% compared to annual volatility for SPY of 19.09% and a max drawdown of -55.20%. Finally, looking at return/risk, SPY is better than the SPY Covered Call ATM with a return/risk of 0.59 vs 0.54. So, the consistent monthly income and lower volatility is not enough for the SPY Covered Call ATM strategy to outperform SPY on a risk-adjusted basis. This gets back to the key drawback of covered call strategies; they are forgoing the right tail of the distribution of market returns for income. Sometimes, this is a great trade, but it is particularly disastrous coming off market bottoms. For example, in 2020 the SPY Covered Call ATM strategy was flat while SPY gained just over 18%. The 2020 difference in max drawdown was only 5%. While an extreme example, 2020 highlights the risks going with an at-the-money covered call strategy. As it turns out, we can mitigate these risks by selling out-of-the-money (OTM) options. The table below contains the results of covered call strategies with targeting varying levels of how far out-of-the-money to sell a call each month.

All the covered call strategies lag the market if just looking at cumulative returns, but three strategies have higher return/risk metrics than SPY. Perhaps unsurprisingly, the strategies with the highest return/risk metrics sold the furthest out-of-the-money options. While their median monthly incomes are lower than the SPY Covered Call ATM strategy, they are far better at maximizing the benefits of writing calls on a portfolio basis. One of the key reasons for this is the ability of the further OTM strategies to participate in most of the market’s return while generating meaningful option income in more volatile markets and thus lowering volatility more during those periods. For example, the SPY Covered Call 4% OTM strategy only produced a median monthly income of 0.21% over the entire back test period, but its 2022 yearly option income was 11.05%. Still, it is very difficult for a consistent call writing strategy to outperform the market itself on a total return basis in the long run, but they can be beneficial to risk-adjusted returns. The benefit seems to be concentrated in writing out-of-the-money calls so the strategy can participate in most of the market’s return. We’ll finish with a common saying regarding options, “Own the probable, sell the improbable.”

Daily Option Ideas for April 28, 2026