In a previous post I've already discussed one of my favorite risk aversion indicator in equity space : the Nasdaq to Dow ratio. Now I'd like to watch another important ratio: small capitalizations vs big ones. Small caps, as asset class, are considered to be more vulnerable to a recession, since they have more difficulties to get an access to cheap financing. Therefore, if we, as I expect, are heading in the 2nd dip of W-shaped recession, the small caps should show some weakness.
And it's what they do on the chart bellow. The charts shows the ratio of Russel 2000 (2000 medium to small capitalizations) to SP100 (hundred biggest US caps).
As we see, the rally off its lows has started well before the indexes their-self did it. And it has ended mid-September, a bit less than 10 months later. Since,we have drown a regular 1st wave down, signaling from the Elliott waves perspective the trend change.
If we apply the time the rally in the risk appetite has lasted to the SP500 or Dow indexes, we'll get the projection of their top for the year end, once again.
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