Sunday, November 08, 2009

A Look at the Recent Underperformance of Small Cap Stocks

The recent post noted weakness in the number of stocks registering fresh 20-day highs vs. lows. Above we can see a contributor to that weakness: the relative underperformance of Russell 2000 stocks (IWM) relative to S&P 500 large caps (SPY) since the momentum peak in September. Interestingly, small caps were outperforming large caps by about 6% on the year in September; since then, however, small caps have actually moved to a slight underperformance on the year. This suggests a potential narrowing of the base of the market rally, something I'll be watching for this coming week.