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Well, we all now know that the "January Effect" (i.e. that small caps
outperform large caps) has been a big fizzle to date. But let's discuss this
a little bit. There may well be reasons to expect the "January Effect" will
still arrive, like maybe in February. The small cap momentum indicators show
this sector to be as oversold now as they have been since the fall of 1996 and
summer of 1997. If you look, it was at those times that the small caps
started their last two up waves of advance.
Also I detect a lack of interest in this group. The OTC/NYSE ratio of volume
has fallen to a two and a half year low. Could this mean all the scared money
has left?
As I see it, we could have a catch up rally in small caps from these levels.
However, I suspect it will not be a role of leadership vs the large caps, at
least not just yet.
A related sidelight, the ING Barings Emerging Asia Mkt Index is down over 60%
from its highs of recent years, quite a severe decline. These markets may
well be grossly oversold and we could possibly see a sharp reflex rally.
Technically speaking, could these markets and our small cap market be holding
hands?
Jerry
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