Why Blue Chips Should Continue to Outperform

This is what I wrote on Wed. afternoon, with the spread at 1.5792... It has widened to 1.5870 since... The powerful upside breakout in BIG CAP DJIA component GE yesterday and today bodes very well for continuation of BIG CAP outperfomance in the upcoming days and weeks... MJP 4/27/07 1.5873

I have maintained a spread position long the Dow Blue Chips (DIA) vs. short the Small Cap Russell (IWM) since Sept., 2006. I argued then, and still contend now, that money flows, uneven global economic growth prospects, and the impact of a weaker dollar SHOULD combine to make the BIG CAP-- GLOBALLY POSITIONED -- BLUE CHIPS more attractive than small cap localized businesses. My sense is that all of the action since July 2005 represents a big base pattern that that ended the prior multi-year deterioration of the BIG CAPS vs. the small caps, and the beginning of BIG CAP appreciation (outperformance) vis-a-vis the small caps. From a technical perspective, the spread has to widen beyond a ratio of 1.6400 to trigger a relative BIG CAP upside breakout versus the small caps. MJP 4/25/07 1:00 PM ET (1.5792)

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