Brian G
Engineer & CFA, Trend-Based Market Analysis
A seasonal bottom ahead of maximum seasonal bullishness favors US small caps now. Stock Traders Almanac says the Russell 2000 is down 11% from its August 14 high and expects small caps to bottom in mid-to-late October before rallying into year-end. x.comÂ
Small caps have the best chart of the three major US indexes, and money is flowing into the financials and biotech names the Russell 2000 is full of. The position was started on the post-FOMC flush and will be managed against the 9-day EMA, with the risk of exiting if Fed chair Warsh's press conference goes the wrong way. x.comÂ
The Russell 2000's cheapest P/E among the major indices does not make small caps a buy. Once growth and earnings revisions are factored in, it looks like the least attractive index of the group. x.comÂ
Falling rates and buying in financials, consumer discretionary and Home Depot make US small caps a very good buy here with high probability. The drawdown exceeds 11%, as it did at the start of the Iran war, and daily RSI and MACD are at similar bottoms. x.comÂ
US small caps look as bullish as they possibly could after an insanely clean breakout and retest of a five-year accumulation range, a setup that can run for years, not months. As the highest-risk equity index, the Russell 2000 is a barometer for high-risk assets broadly, and US liquidity is breaking out from its lows at the same time. This is not a bear market; everything should go a lot higher this year. x.comÂ
High interest rates are hurting US small caps. The Russell 2000 is retesting its May lows even while the Dow is up and the S&P 500 is only slightly lower. x.comÂ
US small caps are drawing a rotation that signals the market is quietly going more risk-on. When the Nasdaq and S&P 500 printed their first red daily candles after 14 straight green days, the Russell 2000 still closed higher, showing money moving from large caps into small caps rather than leaving the market. x.comÂ
Falling yields could drive a Russell 2000 rally, making US small caps look very attractive into next week. Touching and bouncing off the 200-day SMA is normal for the index, and a break above 285 would make things very interesting. Hot yields are the swing factor: if they fall, adding exposure makes sense. x.comÂ
A suspected crash and liquidity squeeze make small-cap longs unattractive initially. x.comÂ
US small caps are finally breaking out of their long pullback as the market recognizes that yields have likely topped, with inflation and Fed worries easing. x.comÂ