Small Caps continue to Outperform the S&P 500

The Russell 2000 index continues to outperform the S&P as the ratio chart shows. It usually means that large caps are fairly valued and money flows into Small Caps in search of additional alpha.

The Teflon Market - S&P and the Sector Performance

The Teflon Market as they call it on CNBC shrugged off all the bad news from Middle East and Japan and is once again in Bull mode. SPX broke above the 55-Day MA targeting the 1335/4o recent highs. Technicals remain Bullish and trend looks constructive at this stage.

Small Caps represented by Russell 2000 are outperforming the S&P and looking for new highs.

Basic Materials remains in the best performing sectors list with Precious Metals leading the rally as Silver is on a strong Bull run with immediate targets above $40.

Energy Sector along with Crude Oil making new highs underpinned the strong performance of the S&P in the midst of the recent tensions. Oil & Gas companies seem to benefit from the rising Oil prices and the fears from the Nuclear power as Uranium stocks were hit extremely hard after the Japan Earthquake.

Financials are struggling and remain below the 55-Day MA. Housing sector problems and big number of mortgages still under water seem to be a drag on the balance sheets with slow credit growth doesn't help also.

Industrials are lagging the Materials and Energy but still perform in the top tier as economic recovery goes on.

Technology is having problems below the 55-Day MA for the moment as companies still withhold from spending.

Interesting enough the Consumer sector is a raging bull here but looking a bit tired as the trend is looking a bit flat even though we see a nice pull back after the Japan earthquake hit. The QE2 loose money policy should be benefiting the consumer while it is a bit confusing as the housing sector is struggling and mortgage payments are a drag on consumption for a large part of the lower income population until the unemployment falls to levels below 6-7%.

Utilities as a traditionally defensive sector are not in vogue and actually flat for the last 6 months.

Health Care is actually in a pretty healthy position. We should monitor the political decisions for further guidance in this sector.

US Sector Performance vs S&P 500 - Small & Mid Caps Outperformance

Small Caps (RUT) and Mid Caps (MID) Outperform the S&P 500.

IWM and MDY ETFs track best these cash indices.

Financials rallied off the lows in Dec 2010. Energy sector performed very strong in Q4.

Consumer Services and Basic Materials were the strong performers in 2010.

Health Care has been the weakest performing sector in 2010. Consumer Goods reversed their strength in Q4.

There was volatility in Q3 in Technology sector, however performance is overall flat for the 2010. Home Construction was a consistent Under-performing sector which bottomed out in Dec 2010.

Utilities as a defensive sector finished 2010 near the lows of the 2010 range. Industrials were a consistently outperforming sector and given the economic recovery builds momentum in 2011 they will continue to do well.