Big Divergence happening between Small and Large Cap Equities...probably Bearish for Equity Markets...

 

There is a big divergence happening in the equity markets, and it is most likely Bearish.  Recently, I noticed that most of the potential trading ideas that hit my radar screen have been stocks that have sold off down to levels that have been support in the past.  In addition, I noticed that many of these same stocks have broken these support levels.  IBM is the perfect example which I mentioned yesterday.  So what is apparent now, is that the Large Cap Club...ie the household names like AMZN, AAPL, and FB, are taking the broad indices higher, while there are many equities that have been going lower.  

For example, take a look at these charts.  It shows the S&P 100, which is as large cap as it gets, and the Russell 2000, which is the small cap index.  Since July 25th, the Russell 2000 has fallen by almost -3.5% while the S&P 100 has appreciated by about +.70%.  This is a large divergence.   It is important to remember that last year after the election, it was the small caps that lead the rally.  After the election, the small caps rallied about +15% is less that two months.  It took the large caps about five months to make the same gains. 

It could be argued that the opposite is happening now, and these dynamics could mean that the broader markets will start to head lower.