Big tech is cracking but small caps are booming — rotate into small caps
Thesis
Small caps are on pace for their best first half since 1991 while the S&P 500 sits at a critical breaking point — this is a historic divergence. Trump publicly pressuring the Fed to cut rates is the key catalyst: small companies carry more floating-rate debt and are far more sensitive to borrowing costs than mega-cap tech firms. If rates come down even slightly, small caps get a disproportionate tailwind. Meanwhile, large-cap tech is breaking down. This pairs a bullish small-cap fundamental story with a bearish large-cap technical setup — a textbook rotation environment.
Strategy approach
Build a relative-strength rotation strategy. Go long IWM (Russell 2000) and short QQQ (Nasdaq 100) in equal dollar weight when IWM outperforms QQQ over a rolling 20-day period. Rebalance weekly. Exit when QQQ 20-day performance exceeds IWM by more than 2%.