Large Caps Are Leaving Small Caps in the Rearview Mirror

In today’s market, the coronavirus pandemic is proving that it’s best to go big when it comes to investing in equities. Thus far, large cap equities are leaving their small cap brethren in the rearview mirror and technical data shows that more weakness could be head for small caps.

“The small caps fell further and have not recovered nearly as fast nor as far as the S&P 500 and the NASDAQ Composite,” wrote John Navin in Forbes. “This may not be good long-term because of the lack of a real recovery in the Russell 2000 is a failure to confirm any sense of widespread bullishness. In other words, investors are holding back.”

“You want all of the pistons in the cylinder block to be creating the full energy,” Navin added. “When one of them is weak, the engine won’t be taking the car for a long ride out on the road without some difficulty. This is the situation right now with the major stock indices.”

Navin, in particular, noted the price action in the Russell 2000 Small Cap Index, which has been underperforming relative to the S&P 500. Navin noted on the S&P 500 index hourly chart, it has been steadily rising on less volume during last Friday’s trading session.

On the other hand, the Russell 2000 Small Cap Index is trending towards the downside in its price action.

Large Caps Are Leaving Small Caps in the Rearview Mirror

“What’s significant is that this index can’t quite get there by week’s end. The price bar is below the higher short-term highs seen just days earlier. This group of stocks is not performing as well as the wider larger capitalized group. A Friday close that negatively diverges from the S&P 500 may be telling.

As large caps continue their reign in equity funds, for investors looking for continued upside in large cap equities over small caps, the Direxion Russell Large Over Small Cap ETF (NYSEArca: RWLS) offers them the ability to benefit not only from large cap equities potentially performing well, but from their outperformance compared to their small cap brethren.

RWLS Fund Facts:

  • The Russell 1000®/Russell 2000® 150/50 Net Spread Index (R1R2NC) measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the Russell 2000® Index (the “Short Component”).
  • On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
  • In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a large-capitalization over small-capitalization investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

For more market trends, visit ETF Trends.