The Diamonds Trust ETF (NYSE: DIA) is knocking on new highs from the March bottom as the Russell 2000 ETF (NYSE: IWM) is showing some signs of improvement.



Chart Courtesy of StockCharts.com

Large cap blue chip stocks, such as those in the Dow Jones Industrial average are still acting well, despite the overall volatility of the market.

That's because money is still moving into large cap stocks than small stocks. What's interesting, though, is that the small stocks are starting to show some improvement.

The key to the improvement in the small stocks could well be the action in the dollar, which many investors in small stocks seem to be betting on as having made a bottom.

The way this relationship normally works, is that large multinational companies, such as the ones in the Dow, do better with a weak dollar, as they book more sales overseas. During those periods, small companies, whose sales are more dependent on the U.S. tend to lag.

Yet, the improvement in the small stocks, which roughly corresponds to the dollar starting to move sideways, may be a good signal for the stock market as we head into 2010. It's hard to get too negative if the dollar steadies out and the small stocks join the big stocks in a continuation of the current rally.

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