In the topsy-turvy environment of the last few weeks, we are seeing some improvement in our overall short-term outlook. The stock market certainly became "oversold" on the weakness last week, reaching levels that typically create at least a short-term bounce. The one missing link has been our Psychology Composite that had not been improving as much as we'd prefer, but in the last few days, that improvement has started.
We have seen some of this in the personality of our sector studies. In some ways, the sector decision needs to focus as much on the capitalization of the stocks as much as the sector itself. For instance, as you observe the bar chart below, you see that the majority of the equal weighted sectors (orange) have outperformed the market-cap weighted sectors (blue).
This is a smaller stock versus larger stock comparison. The most vivid example of this, of course, comes in the Technology sector. In that sector, the equal weighted stocks have appreciated 24.97% in the last one year, while the market-cap weighted stocks are up only 8.65%. This is largely a result of the weakness in large-cap Apple, but you can see that with other small versus large comparisons throughout this sector.
Don Hays, Justin Wood & Daniel Petzold
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