We've had a strong six-day run in the large cap stocks, with XMI up over 2.5% in that period. Small cap issues (SML) have been even stronger, up about 4%. I decided to look at what happens in the S&P 500 (SPY) since March, 2003 (N = 762) after a big cap run and whether small caps play a role in future performance.
I found 94 occasions of six-day XMI gains of over 2%. Six days later, SPY was up by an average of .17% (55 up, 39 down), which is less than the average six-day gain for the sample of .37% (449 up, 313 down). When XMI was up by more than 2% in six days and SML was strong (N = 47), the next six days in SPY averaged .50% (31 up, 16 down). When XMI was similarly up and SML was weak (N = 47), the next six days in SPY averaged a loss of -.16% (24 up, 23 down).
Once again, it appears that performance in the small caps mediates future performance in the S&P 500--this time on a longer time frame. When the large caps are strong and small stocks are relatively weak, the S&P noticeably underperforms over the next six days. When the large caps are strong and small stocks are also strong, there are greater odds of continuation of strength. We'd have to chalk this one up as moderately favorable for the bulls.