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Small Cap Leading Indicator

|Includes: DIA, SPDR S&P 500 Trust ETF (SPY)

An interesting market relationship formed recently with the highs in the S&P500 reached just prior to Election Day 2012. Each week, Baseline Analytics reviews a series of charts depicting the technical condition of the major indices plus relationships between various market sectors.

Reviewing weekly charts, we note below that the Dow Jones US Small Cap Index peaked in April 2006. We then measured how long it took for the S&P500 to peak. That timeframe was 18 months, as shown on the left side of the chart below:

Fast forward to 2011 when the Small Cap index peaked in July. Measuring 18 months from that peak would suggest a peak in the S&P500 in the November 2012 timeframe, right on target with the 18-month timeframe. The S&P500's recent peak was on October 17 at 1461.

This may simply be coincidence and a lucky repeat of a historic relationship. Nevertheless, patterns such as this are part and parcel of a technician's tools, especially with regards to setting price targets and evaluating cycles.

At Baseline Analytics TrendFlex, there are many such market sector relationships that comprise our review of the financial markets and the assessment of the current trend. Click here to learn more about Baseline Analytics TrendFlex.