Can Small-Caps Continue to Come Up Big?
It was a very good day for secondary stocks, but things could shift very quickly if there is a convenient excuse.
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Rotation into small-cap stocks was the primary market theme on Monday. The Nasdaq 100 QQQ closed almost dead flat, while the Russell 2000 Small Cap Index IWM jumped 1.7%.
When small-caps are strong, they produce very good breadth, and that was the case on Monday, with around 6,800 stocks gaining and 2,650 declining. The number of new highs is fairly low at around 300, which is a reflection of the fact that the small-caps have pulled back from the highs hit on October 16.
Magnificent Seven Stocks MAGS started strong, but Tesla TSLA, Nvidia NVDA, and Microsoft MSFT faded as the day progressed.
It was a very good day for speculative trading of secondary stocks, with a long list of names moving up more than 10%. More than 40 names in the Russell 2000 were up more than 10%, and nearly 200 gained 5% or more.
The primary issue now is whether the small-caps can gain further momentum and keep on running. Several times this year, the small-cap rallies have fizzled out, and there was pretty severe downside without much warning.
We have consumer confidence and job opening numbers in the morning, followed by earnings from Alphabet GOOGL and dozens of others after closing. The focus on earnings is likely to shift the attention of market players, and we may not see the same sort of speculative action we took on Monday.
Overall, it continues to be a very healthy market, but there is a lot of complacency, and things could shift very quickly if there is a convenient excuse.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark was long NVDA.
