The Uptrend In Small-caps

"But they're not keeping up with large-caps"...

Yes, this is true. Small-caps have not been keeping up with the returns of some of the large-cap indexes.

And that's actually perfectly normal.

During the bull market in the 1980s, small-caps underperformed a lot. We saw the same thing in the 1990s. And we saw it in the 2010s.

So if small-caps are regularly going to underperform in some of the greatest bull markets of all time, why is anyone surprised they've underperformed this time?

Here's what it looked like in the 90s, for example:

Small-cap indexes are always kicking out all their best players, by design.

So by my math, they should underperform a lot.

This time is no different.

"But what is the catalyst, JC"

It's always been the US Dollar. I don't see anyone or any firm out there pounding the table on this one as much as we have. And for good reason.

When we have a stronger Dollar, stocks have a hard time making much progress. But when the Dollar has been weak, stocks rip.

Look what happened to stocks last week, for example.

Notice how the Dollar was getting slammed:

You can see the Dollar Index breaking that key 105.50 level we've been pointing to. But notice how relative to Emerging Markets currencies, the Dollar had already been selling off for a month.

This is a good reminder to look underneath the surface.

In the same ways that we treat it as a 'Market of Stocks', we want to look at the Dollar through a similar lens. With the Dollar Index being represented by 60% Euro, we need to expand that universe to get a better idea of overall Dollar weakness or strength.

If the Dollar remains weak, expect this face ripper to continue through year end.

Last week was our LIVE Monthly Charts Strategy Session. Premium Members can access that here along with our new Trade Ideas.

If you're not already a Premium Member, email Peter and he'll set you up.

Let me know what you think!

JC