Small-cap technology: Acting like the big brother

THE BIGGER BROTHER IS SHOWING UP FOR SMALL-CAP TECH

In premarket action on Wednesday, CME e-mini Nasdaq 100 futures are down almost 2% after poor earnings from technological behemoths Microsoft and Alphabet spurred losses in other mega-cap firms and stoked concerns about slowing economic growth.

To be noted, small-cap Russell 2000 futures (RTYcv1) are now trading up about 0.3% before the market opens.

In any case, and maybe surprisingly, small-cap tech has fared better than large-cap tech during this year's market catastrophe. The Invesco S&P Small-Cap Information Technology ETF is the truth. Tech Select Sector SPDR Fund ratio will likely have its first up year since 2016 this year.

The XLK has decreased 26.1% year to date, and PSCT has decreased 21.5% as of Tuesday's end. As a result, the ratio is forecast to increase by 6.3% in 2022 as smaller-cap stocks do better.

The PSCT/XLK ratio, however, is just below its 200-week moving average (WMA), which is declining, and has pushed marginally over a weekly resistance line from its 2016 peak:

Early in 2021, the 200-week moving average restrained strength. In late October 2017, the ratio last closed above this long-term moving average.

A more significant relative move in favour of small-cap tech may be indicated by a weekly closing back over the 200-WMA.

Failure to surpass the 200-WMA, which results in a break back below the 2016 high's broken resistance line, which should now serve as support, as well as a violation of the 2020 trough's support line, can place small-cap tech on the back foot once more in comparison to its larger sibling.

At the end of September, the top XLK holdings comprised Apple and Microsoft also Nvidia. It comprised fifty percent of the ETF's weighting. After the close on Thursday, AAPL is scheduled to release its earnings.

At the end of September, the top PSCT holdings comprised Holdings by EXLService, Rogers Corp. including SPS Commerce. It made up about 13% of the weighting of the ETF.