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Mid- and Small-Cap Relative Performance Matters! Don't Miss These Crossovers!

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While comparing the relative performance of the OEX, IJH and IWM to the SPX, I found an attention flag. The market is very overbought, with momentum indicators rolling over in overbought territory. The same thing goes for all the sectors. A CandleGlance of the sector SPDRs and SPX are all in agreement concerning the PMOs decelerating and rounding into tops. The CandleGlance below strongly suggests a market top. Bright spots? Technology and Utilities have PMOs that are still somewhat rising.



Below is the chart you need to see. I looked at price relative and noted clear trend breakdowns and breakouts, which are marked where the market reversed in a big way. When mid- and small-caps are outperforming the SPX, rallies tend to continue. However, a negative crossover and subsequent underperformance mark the beginning of market downturns. Notice that the large-cap OEX tends to outperform in declines, but underperform during rallies. The reverse correlation is visible as, as mid- and small-caps outperform, large caps underperform. It almost looks like a mirror image. A breakout from the declining trend shows that large-caps are beginning to outperform the SPX once again. There is also a breakdown in relative performance by mid- and small-caps. 

Conclusion: Despite an upcoming Long-Term Trend Model BUY signal on the SPX, I'm concerned in the shorter-term about the breakdown in mid-cap performance and the near-breakdown in small-cap performance, accompanied by a relative performance breakout by the OEX. Coupled with the PMOs that are rolling over across the sectors.... the technicals suggest a pullback at a minimum, but a correction seems more likely. The market is really overbought across the board - a correction is needed.


Watch the latest episode of DecisionPoint with Carl & Erin Swenlin LIVE on Fridays 4:30p EST or on the StockCharts TV YouTube channel here!


Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Erin


Helpful DecisionPoint Links:

Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


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Erin Swenlin
About the author: helped create and manage the DecisionPoint.com website alongside her father, Carl Swenlin. Together, Erin and Carl launched the DecisionPoint daily blog in 2009. She hosts the MarketWatchers LIVE web show at StockCharts.com, and is also a Member of the CMT Association. Learn More
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