Trading stock market relative moves

Several places have noted the difference in performance between small-caps and the S&P 500.  Let’s look:

Screen Shot 2014-10-03 at 13.56.04

Some say this indicates the overall top of the stock market: ‘small-caps lead the way’.  Others look at the situation another way – long-term correlations between the various US stock indices is very high (usually around 0.8-0.9 in the long term), so a trade is in order: long Russell 2000 versus short S&P or Nasdaq.

I’ll be testing this out with some of my favourite levered ETFs.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s