The SPHB:SPLV ratio chart is showing a compelling setup for small cap stocks. The SPHB:SPLV ratio chart tracks high volatility (high beta with tendency to be small cap) stocks to low volatility (tendency to be large cap) stocks. This ratio chart is another barometer for the risk on versus risk off trade.

In a risk on market, higher growth and higher beta stocks are the name of the game. Investors go on the offense for maximum profits and their less concerned about the economy and a recession. In a risk off market, investors go on defense and move into safer and more stable (low volatility) large cap stocks.

SPHB:SPLV Ratio Chart

The market has consolidated a little over the last week and that was the swing long signal we were waiting for. Notice that SPHB:SPLV has broken through resistance at 0.8050 and now is pulling back to retest that level. This is a classic set up we can trade. If the 0.8050 level holds, it means previous resistance has become support and we can take a beautiful entry off that level (green arrow). Make sure to review this lesson on trading for beginners so that you know which stocks to screen for to take advantage of a turn in the SPHB:SPLV chart.

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