About Shark Watch
Friday, August 1 - 3:56 PM
One of the things that have been a bit puzzling about this market lately is that the small cap indices have been outperforming all the major indices. The IWM looks much better than the SPY, DIA or QQQQ. That seems a bit illogical because small caps would tend to suffer more from tight credit and a poor domestic economy, but that isn’t the case.
So, I dug into the sector weighting a bit and that helped explain what is going on. The IWM has an 18% weighting in financials and an 8% weighting in energy compared to the SPY, which has about 14% financials and 16% energy. So, in other words, the small caps have a lot of small banks, which have been strong lately and less of the big oil and commodity names, which have been weak.
Keep that in mind for future use should you want to put on a hedge. If you believe that financials are going to roll over and energy and commodity perk back up, you’ll definitely want to use the IWM as your short vehicle.