Monday, April 27, 2009

When Good Things Come in Smaller Packages

Since the market bottom in March, note how performance has been strongest among small caps ($SML), next strongest among midcaps ($MID), and weakest among large caps ($SPX). This is another case in which the relative movement of more and less speculative issues provides a sentiment gauge.

In a bull market mode, risk appetites and speculative interest lead traders and investors to smaller, more entrepreneurial issues with higher growth potential. In a bear market mode, risk aversion and the need for safety lead traders and investors to larger, more established blue chip names with higher perceived stability.

While the indexes are in a multiday range at present, with small caps underperforming large caps since 4/17, the overall bullish sentiment dynamic remains intact, reflecting strength in the NYSE TICK. Per my recent post, I would expect to see weakness in the Cumulative TICK and relative underperformance among small and midcap issues if we are to sustain a downtrend.