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Market Pro: Strength in S&P, Weakness in Small Caps

Tuesday, 22 Mar 2011 | 6:36 PM ET

Mark your calendars: earnings season begins at 4pm sharp on April 11th when Alcoa reports.

Between now and then investors will pore over countless charts looking for any and every bit of information that could provide a leg up.

And it appears Oppenheimer’s Carter Worth may have spotted something, significant.

He says, technical signals suggest investors should take bullish positions in large cap names and either move to the sidelines or short small cap names.

Largely Worth draws this conclusion by charting trend revisions.

Analyst EPS Estimated Changes Q1

1week 3weeks 6 weeks
S&P 500 0% -0.1% +0.3%
S&P 600 Small Cap -0.2% -2.0% -5.3%
Source: Carter Worth, Oppenheimer

In essence Worth is looking at what analysts have been saying about earnings, 6 weeks ago versus 3 weeks ago versus 1 week ago.

And the conclusion that he draws is that there’s been very little revision in the S&P 500 but the revision trend has been quite negative for the small caps.

Looking at the full year he sees much the same.

Analyst EPS Estimated Changes 2011

1 month 3 months 6 months
S&P 500 +01.% +2.1% +2.8%
S&P 600 Small Cap -0.7% -0.7% -0.6%
Source: Carter Worth, Oppenheimer

”The pattern that emerges here is important,” he concludes. “There’s a negative trend for small cap companies and a quite positive trend in large cap names.”

And Worth says the trend makes all the sense in the world. “Small cap always outperform coming off a bottom,” he says. “But typically in the 3rd year the rate of outperformance starts to abate and large caps catch up.”

What’s the trade?

Favor large caps versus small caps. You can play that being long the SPY versus short the IJR, says Worth.

Chartology: Heading Into Warnings Season?
Adobe says it's cutting its forecast due to Japan. Also a look at transports, and analysis of whether fear is driving people to big cap stocks, with Carter Worth, Oppenheimer Asset Management, CNBC's Melissa Lee and the Fast Money traders.



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Trader disclosure: On March 22, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Tim Seymour is Long (AAPL); Tim Seymour is Long (CCJ); Tim Seymour is Long (CSCO); Steve Cortes is Long (TM); Steve Cortes is Long (GS); Steve Cortes is Long (CSX); Steve Cortes is Long (SDY); Steve Cortes is Long (SO); Steve Cortes is Long Crude Oil; Steve Cortes is Short (F); Steve Cortes is Short (C); Steve Cortes is Short (UNP); Steve Cortes is Short (SPY); Steve Cortes is Short (DBA); Steve Cortes is Short Wheat; Steve Cortes is Short Soybeans; Steve Cortes is Short Corn; Steve Cortes is Short CAD/USD; Steve Cortes is Short EUR/USD; Joe Terranova is Long (C); Joe Terranova is Long (VRTS); Joe Terranova is Long (GS); Joe Terranova is Long (PNC); Joe Terranova is Long (USB) ; Joe Terranova is Long (JPM); Joe Terranova is Long (UPL); Joe Terranova is Long (CREE); Joe Terranova is Long (MS); Joe Terranova is Long (PBR); Joe Terranova is Long (BAX); Joe Terranova is Long (POT); Joe Terranova is Long (FCX); Joe Terranova is Long (CVE); Joe Terranova is Long (CVI); Joe Terranova is Long (SU); Joe Terranova is Long (TEVA); Joe Terranova is Long (IBM); Joe Terranova is Long (BTU); Joe Terranova is Long (CNX); Joe Terranova is Long (XOM); Joe Terranova is Long (DIS); Joe Terranova is Long (MCD); Joe Terranova is Long (RSX); Joe Terranova is Long (CNQ)

For Brian Kelly
Accounts managed by Kanundrum Capital Are Long (EWJ)
Accounts managed by Kanundrum Capital Are Long (MCP)
Accounts managed by Kanundrum Capital Are Long (NFLX) Puts
Accounts managed by Kanundrum Capital Are Long U.S. Dollar
Accounts managed by Kanundrum Capital Are Long Gold
Accounts managed by Kanundrum Capital Are Long Crude Oil
Accounts managed by Kanundrum Capital Are Long Natural Gas
Accounts managed by Kanundrum Capital Are Short (SPY)
Accounts managed by Kanundrum Capital Are Short Yen
Accounts managed by Kanundrum Capital Are Short Copper

For Sandeep Shyamsukha
No Disclosures

For Carter Worth
No Disclosures

For Barry Ritholtz
Funds Managed by Fusion IQ Own (DELL)
Funds managed by Fusion IQ Own (CBOE)

For Nick Deluliis
No Disclosures

For Brian Stutland
No Disclosures

CNBC.com with wires.

  Price   Change %Change
IJR
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SPY
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