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The Run In Small Caps. Will It Continue In 2017

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The stock market went on quite a tear in the 3+ weeks immediately following the election, with the month of November especially beneficial for small-cap stocks.

Before delving into what it all might mean for small-cap investors, here's a quick rundown to help contextualize just how dynamic a month it was:

  1. This was the best November in the history of the Russell 2000 Index. featuring its highest monthly return since October 2011 when small-caps were just emerging from a precipitous decline.
  2. The performance spread between small-cap and large-cap was the widest in 14 years (since April 2002). The Russell 2000 gained 11.2% for the month versus respective gains of 3.9% and 3.7% for the large-cap Russell 1000 and S&P 500 Indexes.
  3. Small-cap value enjoyed a good year's worth of results in one month! During November, the Russell 2000 Value advanced 13.3% compared to 9.0% for the Russell 2000 Growth.
  4. Small-cap value earned an even bigger advantage quarter-to-date, thanks to better performanc

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Admin

The stock market continues to weaken, as evidenced by these ETF charts.    If you zero in on a sector you wish to short, I would bear in mind that ETFs are comprised of market leaders.  I would look for names "outside" of the ETF components; consider them leaders and you want the weaklings to short.

The reasons for weakness are numerous. 

Consider the election weight (a Trump win would weigh on equities but Clinton weighs on pharma pricing).  Then there are flat-to-dropping sales.  Of course the USD movement (up will weigh on commodities and large caps with overseas exposure).  Then there's those who feel we are already at or above maximum value and they're not buying here.  They're hedged, short some and long financials ahead of the Fed rate hike.  Then there's that Fed hike itself.  High dividend is flushing down the toilet (SDY) in September.  Overseas weakness with China not helping boost confidence for demand.  And we also have more failure at the OPEC talks with no offer from o

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Admin

Chuck Royce: The Current State Of Small Caps

The small-cap market finished 3Q15 with a double-digit decline, in many ways similar to the correction investors saw around this same time last year. CEO Chuck Royce sits down with Co-CIO Francis Gannon to discuss why he believes corrections are a sign of healthy market behavior, the importance of risk management in the small-cap space, and why he thinks a new market cycle will favor companies with earnings.

More at RoyceFunds

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Admin

Poised For Jobless Claims

1291177?profile=RESIZE_320x3201291213?profile=RESIZE_320x320Ready for tomorrow's numbers, gold and IWM are ready to head either way.  Utilities are sitting at support and banks are ready to scream up.

Higher-than-expected claim numbers will mean the economy is not as strong as we believed and the chances of a June rate hike will be off the table until September. 

No support or resistance is broken so we'll wait for the numbers but isn't it grand; how the markets are not rigged.  Sarcasm alert there.  Good luck.

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Admin

Diamond Top In Small Caps

1291153?profile=RESIZE_1024x1024As discussed yesterday in Chat, small caps appear to be forming a diamond which can represent a "top" or merely taking a rest or consolidation before resuming it's trek higher.

Theory is to trade the direction of the break higher or lower.  IWM would work for a bullish breakout and TWM for a bearish break down for those who are unable to short.

fwiw we recently traded TWM on market weakness.  Looks as though it may be setting up again.

For more information on diamonds, I would suggest you browse through Thomas Bulkowski's pages at ThePatternSite.

For a technical analysis trader or investor, you need to be able to properly identify stock patterns his book Encyclopedia of Stock Patterns is a must have.

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Admin

Bullish on Small Caps

1291011?profile=RESIZE_480x480In early October, I pointed out that the Russell 2000 (IWM or $RUT) could be forming a bullish butterfly pattern, having found buyers off of the 20month SMA.  (See here

Well so far so good and I'm calling it's recent consolidation a bull "flag" due to no significant breakdown in the other three indexes, nor semiconductors.

Friday we saw banks and broker/dealers make a nice reversal higher after comments were made, that while the ECB is not easing "now", they will be preparing a QE plan for their January meeting.  The U.S. 10 year popped and the banks/brokers followed in suit.

Small caps also typically outperform large caps going into the end of the year.  While the stronger US dollar may weigh on them longer term, I still believe Santa will not leave them off his "nice list" this holiday season.

While much of the equity market is extended, banks still have room to run and I feel small caps will rip to the upside and I hope to see them lead.  My next $RUT target $1300.  Stop below

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Admin

Small Caps

1290885?profile=RESIZE_480x4801290919?profile=originalSmall caps have been the 800 pound gorilla in the room as the Dow achieved a new all time high.  A stronger dollar would certainly have more of an impact on them of course as they tend not to have the cash reserves of their larger mid-cap and large cap cousins.  Lack of growth in the EU and China certainly do not help matters.

What some pose as a possible double top, could also be a bullish butterfly pattern beginning to emerge.  It's downside target would coincide quite nicely with it's rising 200 week simply moving average.*and* keep it within it's long term channel since the 2009 low (a buying opportunity) and then the reversal would kick in as the market would reverse (trapping shorts) and resume it's move upward.

BTW one must note that no support has truly broken yet.  It is entirely possible tomorrows opening drive low is bought and we begin to ramp up once again.  Just pointing that out.

The inverse ETF, $TWM, is nearing triangle resistance, which if broke, would give it a ta

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Possible Small Cap Double Top

Some technicians draw with a wide crayon but when I see exact touches in a pattern, I feel it adds to it's validity.  Such is the case in IWM (daily and weekly shown).  The chart is simple to understand and we may simply be carving out a consolidation or trading range during these Summer doldrums however if lower support breaks with volume, then watch out.  Click chart to enlarge.

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