Live Markets: Small-cap tech: Showing up bigger brother

ExlService Holdings

26/10/2022 14:01

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       Oct 26 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at 
    SMALL-CAP TECH: SHOWING UP BIGGER BROTHER (0901 EDT/1301
GMT)
    CME e-mini Nasdaq 100 futures  NQcv1  are off around 2% in
premarket trade Wednesday, after disappointing results from
technology-giant Microsoft, as well as Alphabet, sparked losses
in other mega-cap companies and raised fears of slowing economic
growth.  .N 
    That said, of note, small-cap Russell 2000 futures  RTYcv1 
are trading up around 0.3% ahead of the open.
    In any event, and perhaps surprisingly, with this year's
market meltdown, small-cap tech has actually held up better than
large-cap tech. In fact, the Invesco S&P Small-Cap Information
Tech ETF  PSCT.O /Technology Select Sector SPDR Fund  XLK.P 
ratio is on track for its first positive year since 2016.
    Through Tuesday's close, PSCT is down 21.5% year-to-date,
while the XLK has fallen 26.1%. With this, the ratio is posting
a 6.3% gain in 2022 as the smaller-caps have outperformed.
    Meanwhile, the PSCT/XLK ratio has forged slightly above a
weekly resistance line from its 2016 peak, and is just shy of
its descending 200-week moving average (WMA):
    The 200-week moving average capped strength in early 2021.
The ratio last closed above this long-term moving average in
late-October, 2017.
    A weekly close back over the 200-WMA can suggest potential
for a more significant relative turn in favor of small-cap tech.
    A failure to overwhelm the 200-WMA, leading to a break back
below the broken resistance line from the 2016 high, which
should now act as support, as well as a violation of the support
line from the 2020 trough, can put small-cap tech on the back
foot again vs its bigger brother.
    Top XLK holdings as of the end of September included Apple
 AAPL.O , Microsoft  MSFT.O , and Nvidia  NVDA.O , which
accounted for half of the ETF's weighting. AAPL is due to report
earnings Thursday after the close.
    Top PSCT holdings as of the end of September included
EXLService Holdings  EXLS.O , Rogers Corp  ROG.N , and SPS
Commerce  SPSC.O , which accounted for around 13% of the ETF's
weighting.  
    (Terence Gabriel)
    *****
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)