S&P starting to reprice it self as a comparison to the Russel
Russel 2000 has currently reached is standard 2 deviation as a comparison to the pricing of s&p.
What this means is that currently the S&P price has increased so much over the Russel that recently it has deviated from it average +2 standard deviations.
At some point in time price will inevitably return to its average.
This could mean one of two things.
The s&p price declines more rapidly then Russel.
S&P does not increase in price as much as the Russel therefore underperforming the Russel causing the comparison to revert back to its average.
Last time such a miss price allocation happened lead to one of the biggest bear markets in recent history.
In 2000 the slow climb up with the SPX slowly rolling over and a big spike in Small cap quickly sent the SPX/RUT comparison plumet back down from its +2 to its +1 standard deviation within a short time period only to spike back up. (White arrows on the chart)
Something of the sort has happened recently.
What this means is that currently the S&P price has increased so much over the Russel that recently it has deviated from it average +2 standard deviations.
At some point in time price will inevitably return to its average.
This could mean one of two things.
The s&p price declines more rapidly then Russel.
S&P does not increase in price as much as the Russel therefore underperforming the Russel causing the comparison to revert back to its average.
Last time such a miss price allocation happened lead to one of the biggest bear markets in recent history.
In 2000 the slow climb up with the SPX slowly rolling over and a big spike in Small cap quickly sent the SPX/RUT comparison plumet back down from its +2 to its +1 standard deviation within a short time period only to spike back up. (White arrows on the chart)
Something of the sort has happened recently.
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