[Chart of The Week] Are Small-Caps Following Mid-Caps' Beaten Path?

Below is an overlay of the Mid-Cap 400/S&P 1500 ratio and the Small-Cap 600/S&P 1500 ratio covering roughly the last 10 years of data.

In late 2018 we saw the Mid-Cap 400/S&P 1500 ratio break to decade-long lows and it has since trended lower despite many attempts to regain its footing. Today we're seeing the Small-Cap 600/S&P 1500 break its own decade-long support level, begging the question if it will follow a similar path to Mid-Caps and continue to underperform?

Click on chart to enlarge view.

Whether you like analog charts or not, we think that a break of long-term support is never a good sign regardless of the chart being analyzed, and unless it's reclaimed soon, we'd expect continued underperformance from Small-Caps relative to the broader market.

So what does Small-Cap underperformance mean from an intermarket perspective?

In the past we've discussed that Small-Cap outperformance is not required for Equities to trend higher, instead, they simply need to be participating on an absolute basis.

This past weekend in his bond market post, JC outlined an interesting overlay in Small-Caps/Large-Caps and the US 10-Year Yield.

Those are two interesting intermarket perspectives to consider, but for now, I'm keeping this simple and trading the clear message in front of us.

A break of decade-long support is a problem. As long as prices of the Small-Cap/S&P 1500 ratio are stuck below it then we'd expect continued underperformance in the months and quarters ahead.

What do you all make of this? Let us know.

Thanks for reading.

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Allstarcharts Team