NEAR-TERM OBSERVATION GOING INTO YEAR-END AND POSSIBLY EARLY TO MID-JANUARY 2018

The following is a near-term observation going into year-end and possibly early to mid-January 2018.

SUMMARY

In light of the Russell 2000 Small Cap index’s recent successful test of support in the vicinity of 1452 and its strong internal readings on 11/16/17, the odds favor a near-term period of outperformance by the Small Cap universe relative to the technology-heavy Large Cap universe.   

The chart below depicts the relationship between the iShares Core S&P Small Cap ETF (IJR/$74.63)* and the PowerShares QQQ (QQQ/$153.95)*. When the line is rising, as it is now, IJR is outperforming QQQ—IJR is rising at a faster rate than QQQ and/or declining at a slower rate.

The last time this relationship favored IJR was in early September—please refer to the chart. Between early September and early October, when this ratio peaked, IJR was up almost 10% while QQQ was up less than 1%. I am not saying that the performance disparity between Small Cap and Large Cap will be that dramatic this time. What I am saying is that the odds favor a period of outperformance by the Small Caps, as defined above, especially if the “Swamp” makes some positive inroads on tax relief before year-end.

IJR (Small Cap) relative to QQQ (technology heavy Large Cap) Chart

Have a wonderful week, and please know that Day Hagan Asset Management appreciates your support!

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written 11.20.2017. Chart sources: Stockcharts.com.

*Prices as of the close 11/17/17.

Print Copy of Article: Day Hagan Tech Talk November 20, 2017 (PDF)

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