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The Power of the Pattern shared last October that the Russell 2000/S&P 500 ratio was on multi-year support, as small caps had been weaker than large caps for the prior 10-months. The ratio on support was suggesting this pair trade- Long Russell 2000/Short S&P 500.
The lower right inset chart reflects that Small Caps have out performed large caps by nearly 11% in the past 6 months.
Below is an update on the Russell 2000/S&P ratio. As you can see Small has been the new big since October. Now momentum is getting lofty.
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Key to the top chart…The Russell 2000 is now facing a very key resistance test above, tied to its highs in 1998 and 2007, with the Russell/S&P ratio reaching lofty levels.
What the Russell does at this resistance line could tell us a ton about where Small Caps could be months from now.
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