Looking for New Stock Ideas? The Russell Rebalancing Is Coming Soon.

There were early signs of some "sell the news" action on Tuesday following the delay of tariffs on the European Union. However, a much stronger than anticipated consumer sentiment report brought in a new wave of buyers, and breadth improved to more than 3 to 1 positive. The mood has improved, and the indexes are hitting intraday highs at midday.

The jump in consumer sentiment is a little surprising, but it likely reflects the fact that, so far, there has not been any significant economic impact from tariffs on consumers. Although the news media and many experts have been warning about tariffs for a while, there hasn't been any big surge in pricing or slowing in sales. It could still happen, but it seems consumers are no longer as worried as they were a month ago.

Another piece of good news is that bonds are jumping, and that means that interest rates are falling. Like consumer confidence, that may be due to fewer concerns about tariffs, but it is also a reflection of moves by Japan to stop the rise in rates there. The dollar is always holding steady, which is also good.

I'm looking hard for new buys, but the recent volatility and some of the charts are making that challenging. One thing I'm watching very closely, however, is that the biggest volume day of the year for the Nasdaq is coming soon. It occurs on the last Friday in June when the Russell indices are rebalanced. Hundreds of stocks are added and dropped to the various Russell indices.

There are 3,000 stocks that are impacted by this reconstitution of the Russell indices. The largest 1,000 stocks by market cap are in the Russell 1000 IWB, and the remaining 2,000 smaller stocks will make the Russell 2000 IWM small-cap index.

The preliminary list of the stocks being added to the Russell 3000 IWV can be found here. The list will change in the next few weeks, and some stocks will be added to the Russell 1000 rather than the Russell 2000.

One thing that will occur with these stocks will be elevated volume as index funds gather the shares that are needed to reflect the index. Brokers will buy the shares using various options, and then, on the day that the new holdings take effect, there will be huge blocks of these names transferred at the closing bell.

Many traders try to game this activity, although it's not an easy task. I have found that there can be some good tradeable setups in this list, but you can't just simply look for a strong runup into the re-weighting day. 

I have just started my review and will be discussing some of the more interesting plays. While I already own a few names being added, such as Clearpoint Neuro CLPT, Delcath Systems DCTH, and Eos Energy Enterprises EOSE, there are many other intriguing names that I plan to research.

If you are looking for some highly speculative smaller stocks, the Russell reconstitution list is a good place to start.

At the time of publication, Rev Shark was long CLPT, DCTH and EOSE.