Re-establishing correlation between large caps and small caps

The relative under performance of small caps have been a theme of 2014. For bears, this has been indication of risk aversion and top formation. But what if the small caps were just waiting for the large caps to catch up?

Figure 1: After over-performing in 2013, the small caps have waited for the large caps to catch up.

The market is nearing a decision point: Several indicators are still divergent but the market breath and uniformity have also been on the mend. Now that the large caps and small caps have re-established their correlation, the next move for them will likely be in the same direction.