By MoneyMorning.com.au
One chart we like to keep our eye on is the S&P/ASX200 Small Ordinaries Index (XSO)… Because this index provides the benchmark for Aussie small-cap investments…
When it’s trending up, it’s a sign small-cap stocks could go up too. But if it’s stuck in a rut or trending down… Well, let’s just say the promise of 1,000% gains overnight on a 1-cent ‘penny dreadful’ gets even more elusive.
After having a bit of a run in the second half of 2010, XSO spent 2011 trending down. And it now finds itself at an important resistance level.
The index is trading near a 16-month low… That means small-cap stocks could be relatively cheap.
As you can see on the far right of the graph below, the small ord’s index has had trouble breaking past 2400… It’s tried 3 times – and failed – since September 2011. And now it’s set to have a crack at it again.
Will it break through to the upside this time and send small-cap stocks off to the races? Or will small-caps spend the first half of 2012 in the sin bin?
Keep an eye on this index over the next few weeks to find out for sure.
Aaron Tyrrell
Editor, Money Morning
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