With the markets such a tangled mess these days, I continue to rely on important, long-term ratio charts to appreciate the big picture. Here, once again, is the Russell 2000 divided by the S&P 500, which suggests to me that small caps are going to be in for a rough ride for many, many months.
RUT / SPX Chart
The last time this happened, the pattern was well-formed but much smaller. It seemed weird to me that the point in the past corresponding to the point we are at now (analog-ish-ly speaking) was in the fall of 1997, well before the March 2000 peak. The small caps, however, had a tumble in store. I’ve marked the point (with a red oval) in 1997 where small caps were that equals where I think they are now. I think the much, much bigger pattern of today will make the move much more powerful, however.
Russell 2000 Chart
IWM / TLT Chart
This Suggests Small Caps Are In For A Rough Ride
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