I have maintained a spread position long the Dow Blue Chips (DIA) vs. short the Small Cap Russell (IWM) since Sept., 2006. I argued then, and still contend now, that money flows, uneven global economic growth prospects, and the impact of a weaker dollar should combine to make the big cap Blue Chip stocks more attractive than small cap localized businesses. My sense is that all of the action since July 2005 represents a big base pattern that that ended the prior multi-year deterioration of the big caps vs. the small caps, and the beginning of big cap appreciation (outperformance) vis-a-vis the small caps. From a technical perspective, the spread has to widen beyond a ratio of 1.6400 to trigger a relative big cap upside breakout versus the small caps.



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.