I posted a chart on StockTwits today of the relative relationship between Mid Cap stocks as represented by IJH, the iShares S&P MidCap Index, and long US Treasuries using TLT. I want to highlight that relationship and how it compares to Large Cap US equities.
For much of the last 10 years, when equity markets have rallied they’ve been led by Mid Caps instead of Large Caps which ruled the day in the 1990s. Looking at the current rally and using a start date of June 4, 2012 we’ve seen outperformance by the larger companies which can indicate a narrower base of stocks are pushing the market higher. (Since June 4 XLG, the Guggenhiem Russell Top 50 has returned 15.42% compared to 14.25% for the SPX & 13.02% for IJH)
This got me thinking. Has there been any quantifiable data over the course of the summer rally that would have pointed us in the direction of the Large Cap space vs Mid Caps? First up is the chart of IJH vs TLT. We can see that after favoring TLT for much of 2011 it’s now IJH which has the upper hand with a reversal up on 8/14/12.
Now let’s contrast that with XLG vs TLT. In this case XLG reversed up vs TLT on 6/29/12, fully six weeks earlier than IJH.
By tracking these relative relationships we can tilt the probabilities of being in the right place at the right time, and over time, can increase the likelihood of achieving success in our investment decision making.
Thanks for taking the time to read this.