Thursday, August 2, 2012

Smallcap Underperformance Exhuasting Itself?

Smallcap action has been poor lately.  Typically you would like to see smallcaps offering upside leadership during a rally.  They certainly have not been doing that.  Wednesday’s smallcap underperformance was quite outsized and I decided to look at other pullback scenarios where the RUT underperformed so badly.  I devised the following study.

Instances are very low, which makes it difficult to generate meaningful expectations.  But somewhat surprisingly results could not be any more bullish.  When I looked at the individual instances I noted that four of the six registered 2%+ gains over the next 3 days.  Perhaps the smallcap downdraft is exhausting itself and the market can manage to rally as it has in the past.

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