Small Caps Prophecy Fulfilled
At the end of May this year (31 May 2008), my good trading pal, Jack Wong, posted this item in his blog …
Market Outlook Commencing 2 June 2008
This was a short trading week and the bulls were happy to take control for the entire week. Overall, 1.3% rise for INDU, 3.2% rise for COMPQ – thanks for DELL (see below). SPX was up by 1.8% and RUT was up by 3.3% …. According to sector rotation theory, we are now in an environment where the interest rate appeared to have bottomed. Together with the speculation that Uncle Ben will raise interest rate in the next FOMC meeting, Conrad’s students know where the hot money will flow – one of them is small cap (RUT). So, if this sector rotation theory holds, no matter how bearish the technical outlook for RUT may be, I will not be bearish on that. If I am bearish on the market overall, I will choose the bigger cap to play.
This is what happened after that post …
RUT (Dark Purple Line) has outperformed the three benchmarks and the RUI. And if you had indeed been invested in Small Caps since June, you’d be smiling quite brightly!
So Jack, it was wise not to be bearish on RUT because, as you stated, “if the theory holds” …
It Held.
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