With the latest round of tariffs on Chinese goods, the market is looking tense. One measure of risk appetite is the small-cap to large-cap ratio, which has been very weak recently. In All Star Charts Institutional’s Top 10 Charts of the Week, there’s juiced-up version of the risk gauge to consider: micro-cap to mega-cap.
“We are finally witnessing some relative strength as we move down the market-cap scale,” All Star Charts Institutional wrote in a client note. “For years Large-Caps have bested their Small-Cap and Mid-Cap peers, but in the past week, we’ve seen the Small-Cap Russell 2000 start to bottom at key lows relative to the S&P 500. In the chart below, we are looking at a juiced-up version of the Small vs Large-Cap ratio: Micro-Caps vs Mega-Caps. This ratio recently undercut its all-time low from 2009 as momentum diverges positively. With Small and Micro-Caps at an inflection point, will they bottom relative to their Large and Mega-Cap peers… or is this simply a consolidation before another leg lower? We should know soon. If we get the continued rotation we’re expecting, we can be long above 0.90. But below that level, bearish/neutral is best.”
Read the full Top 10 Charts of the Week here. For information about how to subscribe and receive the charts Wednesday, two days before before they are published on IPO Edge, contact All Start Charts Institutional Sales.