Are Small Caps Trying to Tell Us Something?

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St Louis 02 In reviewing some charts for the writing of my weekly newsletter (comes out early  Sunday evening) … I have been struck by the change in the relative performance of the small cap index (Russell 2000) and in particular, several individual small cap stocks.  The example I am going to illustrate for you in the blog tonight is the difference between FCX and SCCO.


FCX was one of my favorite stocks to trade both intra-day and on a swing basis during 2010.  Below is the daily chart on FCX (click on the chart to increase the size).

FCX_Jan7,2011_Daily_vs SCCO

FCX has respected its 20ema on the move up from the 2010 summer lows.  Notice how it made a nice 5 wave move up from the November consolidation period in what appears to be the final leg of a larger wave 5 move.  Price has pulled back but has bounced off the 20ema the past four days.  RSI(14) seems to indicate that FCX wants to hold this moving average.



SCCO is a small copper miner and therefore a pretty good small cap proxy for FCX.  Here is its daily chart:


When you look at the daily chart of SCCO you will see that it made a nice move off of the 2010 summer lows similar to FCX's.  However, if you look closer to the more recent price action, you will notice some subtle differences.

Firstly, notice how the push off of the November wave 4 lows was more muted with SCCO than with FCX.  It was more muted in both price performance and in the internals as illustrated by the RSI(14) indicator.  Now look at how the price has acted over the past four days … SCCO's price has taken on a "trend-like" appearance in that the candles are hardly overlapping each other.  As well, SCCO's price sliced through the 20ema and appear headed to at least test the 50ema.

Is this divergence in small versus large an indicator of a topping in the overall market?  I think it does adds to the increasing evidence, but as always, the final proof will be in the pudding.

Cheers … Leaf_West

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