For three months, I have held a spread position long the DIA (Blue Chips) versus short the IWM (Small Caps). My fundamental justification for holding this spread back in September was that the U.S. economy was slipping into a slowdown, or worse, which will support holding the big caps, while watching the smaller, undercapitalized companiesâ�,��"� balance sheets deteriorate. With the exception of a few flurries on the upside, however, the DIA/IWM spread has stair-stepped lower from 1.60 to a recent low of 1.56 precisely because the U.S. remains relatively vibrant rather than sluggish.

Apart from my faulty fundamental outlook, my technical work all along has warned me that the 3+ year slide in the value of the DIA vis-�ƒ -vis the IWM ended in March 2006, and that an intermediate-term reversal should be expected â�,�“ the DIA outperforming the IWM. Now we forward-fast to the current situation, and my technical work still tells me to hold long DIA versus short IWM â�,�“ and interestingly now the fundamental justification has come 180 degrees, in that the big caps should outperform small caps mostly because the dollar is in the early stages stages of a longer-term depreciation, which will benefit the big boys (even if it does not necessarily hurt the small caps).

With that in mind, I remain long the DIA and short the IWM, looking for the spread to widen to 1.75-.80 in the months ahead.

While on the subject of the Dow, let me illustrate why I love the DJIA daily chart. It shows the final six rate hikes in the Fedâ�,��"�s 2-year campaign to â�,��"tightenâ�,� credit conditions juxtaposed against the reaction of the DJIA to those hikes, and then shows the reaction of the DJIA to the following four FOMC meetings that resulted in the stabilization of rates.

What we find is that the stock market â�,�“ as measured by the DJIA â�,�“ embraced higher rate conditions nearly as much as stabilized rate conditions! I agree that supposedly contradictory monetary conditions did not exactly hinder money flows into equities, now did it?

So those of us who have college kids taking finance and economics courses should be very careful when explaining how these relationships â�,��"workâ�,� â�,�“ that is, if we can explain at all!  One thing is for sure â�,�“ things definitely have changed a touch since I was taking college economic courses in the mid-1970's.

Needless to say, at some point, Fed action will matter, just not this year, and not right now. The DJIA price structure made new all-time highs today, and the powerful July-December uptrend appears to be gaining momentum strength, not losing it, and is pointed towards the 12,600/700 target zone next.

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his technical chart analysis and trading alerts on all major markets. For more of Mike Paulenoff, sign up for a free 15-Day trial to his MPTrader Diary by clicking here.