Karpel’s Corner: Divergence between $IWM & $SPY signals red flag for traders

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

The gap in performance between the Large Caps ($SPY) and the Small Caps ($IWM) is the largest we’ve seen in over three years. If the higher Beta (domestically-centric stocks) continue to break, then a serious red flag is in the making for traders.

The last time we saw this kind of setup was in July of 2011, and that was when the biggest pullback in four years occurred. On a positive note, China is leading Emerging Markets ($EEM) to the upside.

As we’ve discussed previously, if we continue to see Small Caps weaken, this could result in money cycling out of established markets and into emerging markets.

Another impressive recent move was Gold Miners ($GDX), which in spite of a strong dollar has been a robust performer. If further geopolitical unrest continues and uncertainty grows in the General Market ($SPY and $QQQ), not only will the Gold Miners ($GDX) have an additional catalyst, Meta ($GLD) could catch the upside swing as well.

See you next time at the Corner!