For GT Blog October 5, 2009

In the early 1960's I was an engineering student at Ryerson University in Toronto and I had aspirations of being an acoustical engineer. A local company was introducing a radical new bass enclosure they referred to as an Acoustic Filter

When I asked the designer for the design theory he replied "why would I spend ten minutes to give away ten years of experiments?"

A few years ago the Canadian Society of Technical Analysts asked me to present the theory behind my sector rotation models. When I declined a wise old gentleman took me aside and said, "not to worry - you could explain the secret of eternal life to 1000 attendees and only one would listen!"

I gave the presentation - and the old man was right, my revelations had no cosmic effect

So with that in mind I now share another little secret of market timing using technical analysis: - the small caps lead the large caps. That is why I include the iShares CDN Small Cap ETF (XCS) in my weekly sector rotation tables. When the small caps are higher ranked than the broader iShares CDN S&P/TSX60 ETF (XIU) I get bullish and when the smaller caps rank under the large caps - I get bearish

Our chart below displays the TSX Small Caps over the TSX Large Caps - the bottom indicator is the relative perform which clearly sets out the leadership of the smaller companies - note also the higher March 2009 lows of the smaller caps

The economy sensitive smaller companies lead the way - up and down