Last week I noticed that the major market averages had built some resistance levels. The Dow Jones Industrials at about 8,000, the S&P 500 at 850 and the NASDAQ at about 1,500. After gyrating for the first 3 days of this week the market sold off hard the last hour on Wednesday and the Dow Industrials finished a few points below the 8,000 level. By then, however, the S&P 500 and the NASDAQ were well below the resistance levels they had bounced off the previous week. The two averages have dropped 6-7% further this week than the Industrials.

I had noticed my smaller cap stock holdings were not rallying along with the major averages on the positive days so I thought I would dig into the disparity between the recent performance of large capitalization and small cap stocks. The results are revealing.

To get the recent performance of large cap stocks I looked at the Dow Jones Industrials (DJI), the S&P 100 and the Russell Top 50. Here are their returns for the month of November and since October 1, my starting date for the bear market:

                                                            November                   Since 10/1

                        DJI                              - 14.2%                        - 30.7%

                        S&P 100                      - 15.5%                        - 28.0%

                        Russell Top 50            - 14.25%                      - 26.1%

The numbers for the large caps look pretty terrible, and they are, but wait until you see how the smaller company stocks have performed. On deck for the small caps are the S&P 600 Small Cap and the Russell 2000. Their numbers for the same time frames:

                        S&P 600 Small Cap    - 22.7%                        - 38.3%

                        Russell 2000                - 23.2%                        - 39.2%

As you can see, the small caps have fallen 7-9% farther on average than the large companies and about 10% further since the 1st of October. To see further evidence of the relatively stronger performance of large market cap stocks, the capitalization weighted S&P 500 has out performed the more obscure equal weighted S&P 500 by 3.5% in November.

Anecdotally, we have seen positive stock price results when large cap companies report excellent earnings. Witness McDonalds, NYSE:MCD, Walmart, NYSE:WMT and Hewlett-Packard, NYSE:HPQ. I have not seen any of the small cap stocks I follow get any stock price benefit from a strong quarterly earnings report.

Right now, if you really want to be in stocks, the large cap companies seem to be the place to be. The leaders in their industries like MCD, WMT, HPQ and Coke NYSE:KO are continuing to increase their profits while many of their competitors are faltering in the slow economic environment. I will close with one final piece of data: I was looking at the 10 year returns of the various Russell indexes and discovered the best performance over the last 10 years was the Russell 2000 Small Cap Value index, which has produced a positive 7.4% annual return. In comparison the Russell 1000 Large Cap index has returned 0.75% per year over the last 10 years.