Don't Get So Comfortable Having Fun That You Forget About Risk Control

I spent part of the week in Miami.  While there, I had a great time talking about deals, opportunities, and how so many hedge fund pros are setting-up shop there.




Opportunity can be distracting.

Let's play a guessing game.  Who has two thumbs and forgot to wear sunscreen?




Meanwhile, the Markets have held up well.  The Dow Jones Industrial Average is trading near its highs.


140504 Large Cap Relative Strength 600p


However, the Russell 2000 Index is showing that traders are taking a risk-off approach to the smaller cap issues.


140504 Small Cap Relative Weakness


Investors have clearly had a preference for larger-cap stocks over smaller-cap ones for the past two months.

This type of Small-Cap negative divergence has been market-negative historically.  

Put that with the "Sell in May and Go Away" theory … and what you have is another caution light (and a potential early indicator to watch for when the small caps start to out-perform the big caps again).

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