The small caps, as evidenced by the Russell 2000, continue to show relative weakness with respect to the large caps, evidenced by the S&P 500. While the DOW and the S&P 500 recently hit new daily closing highs, the Nasdaq and the Russell haven’t seen new highs in ten weeks.
From a cyclical analysis viewpoint, the main substantive difference between the Russell 2000 and the S&P 500 is the underlying trend. Both indices are showing a diminution of the amplitude of the 80 day price wave and a fairly large fluctuation in the amplitude of the 20 day price wave over the past few weeks. These amplitude fluctuations will cause cycle to cycle duration fluctuations and may cause pronounced translation effects. The Russell however, unlike the S&P 500, has broken its 20 week VTL (not shown) and may be heading for a lower 20 week low.
There is a high probability that the Russell will put in a lower 20 week high in a few weeks. A 20 week VTL break followed by a lower 20 week high strongly implies that 80 week high has been seen. Since the indices are in the second 80 week cycle since the last 4 year cyclical low, such a sequence of events will imply that the 4 year cyclical high has also been seen. Historically small caps have led the market up and down, therefore the S&P 500 will most likely follow suit.