relative performance of $QQQ vs. $IWM

2023年12月4日

IWM (Russell 2000 small-cap ETF) reached an all-time low in its relative performance vs. the QQQ (Nasdaq large-cap ETF) last month. Today, however, IWM has more than 2% of relative out-performance vs. $QQQ. And it had more than 2.5% of relative out-performance yesterday.

To give a sense of how rare this is: In the last 21 years (since the end of the dot-com crash) there were only 10 occasions when IWM outperformed QQQ by 2%+ on two consecutive trading days.

The dates:

1. 2007-11-09:
   This week brought the first rumbling of what would become the Great Financial Crash (GFC): C CEO Prince resigned, GM announced a $38.6B loss, Wachovia Bank, JPM, and BAC all warned about their exposure to subprime mortgages during that week. No wonder that large-caps got spanked.
   
2. 2008-10-31:
   The week before the US Presidential election, which would see Barack Obama win against John McCain. Also, one of the low points of the GFC: GDP growth for Q3 was announced to be weaker than any quarter since the 9/11 attacks, seven years earlier. Home prices were announced to have plunged by 18% in August, a record. Crude oil futures fell by 33% that week, and copper posted its worst performance in 40 years.
   
3. 2016-11-10, 2016-11-11, 2016-11-14:
   The week after Donald Trump won the election against Hillary Clinton. His agenda had a more domestic focus than Clinton's, so it made sense that small caps (which usually don't have global interests) stood to gain.
   
4. 2020-04-09, 2020-04-28, 2020-05-27, 2020-11-10:
   COVID. 'Nuff said.
   
5. 2023-06-07:
   The U.S. Treasury Potential Debt Default drama had a semi-happy ending.
   

To sum up: This extreme IWM out-performance is often a symptom of an inflection point being reached. I wouldn't be surprised if we got at least a partial reversal tomorrow or on Wednesday, but I think that over the intermediate time frame the theme of small-cap out-performance has legs.

2023年12月5日

交易進行

As I expected in the last paragraph above, we are seeing a partial reversal of the IWM outperformance. I don't believe that large caps have any valuation reserves. So I think that any test of the $QQQ/IWM peak will fail.

This could mean that small-cap stocks rise, or that large-caps fall, or both. I already have a good amount of small-cap long exposure, so I am looking to get some large cap shorts, too. I went long a VIX Jan 17, 2024, 15/23 vertical call spread @$1.16.

2023年12月5日

註釋

There's a double bottom on the VIX's 30 minute chart that also looks juicy. These have a 79% chance of being profitable, according to the HPP indicator. PT1 at 13.94, PT2 at 14.62.