Data &
Technology
Research
Reports
Report Solutions
Reports Library
Actionable
Strategies
Free
Resources
Simple Backtest Calculator
Simple Seasonality Calculator
The Kelly Criterion Calculator
Sentiment Geo Map
Public Research Reports
Free Webinar
Pricing
Company
About
Meet Our Team
In the News
Testimonials
Client Success Stories
Contact
Log inLoginSign up
< BACK TO ALL REPORTS

Daily Report : Small-caps power broader surge

Jason Goepfert
2020-11-09
The Russell 2000's surge adds to what had already been impressive momentum. The spread between its 50- and 200-day moving averages is the widest in 3 years, which has been an excellent long-term sign for that index and the broader market.
View/Print a PDF version of this Report

Headlines


Small-caps power broader surge: The Russell 2000's surge adds to what had already been impressive momentum. The spread between its 50- and 200-day moving averages is the widest in 3 years, which has been an excellent long-term sign for that index and the broader market.

Boost of energy: Energy stocks were among the biggest gainers with Monday's rally, but the sector is going to have to change it stripes for it to stick. There have been a handful of times when energy stocks rallied more than 19% off of a 6-month low in a very compressed time frame. They each fell back in the months ahead, though the signal in March lasted a lot longer than the others. Perhaps it's a good sign that this is the 2nd such signal already this year.

Bottom Line:

  • A positive environment favors becoming aggressive on signs of excessive pessimism, of which there are few yet.
  • Market environment (More info)
    PositivesNegatives
    1. Price pattern (barely)1. % of Stocks in Correction
    2. Moving averages
    3. McClellan Summation (barely)

    4. % Stocks > 200-Day
    5. Net New Highs / Lows

  • Sentiment / Breadth / Other
    PositivesNegatives
    1. Big up volume (and again)1. Confidence high and declining
    2. Surging small-caps2. Too much options speculation
    3. Surging tech stocks3. Equities high vs GDP, Assets
    4. Mar-May thrusts, recoveries4. IPO market too hot
    5. Excess liquidity is high
  • Other Sectors and Assets
    PositivesNegatives
    1. Energy (here, here, and here)1. Skewed tech (here and here)

    2. Dollar test

Smart / Dumb Money Confidence

Smart Money Confidence: 31% Dumb Money Confidence: 71%

Risk Levels

Stocks Short-Term

Stocks Medium-Term

Bonds

Crude Oil

Gold

Agriculture

Research

Small-caps power broader surge

BOTTOM LINE
The Russell 2000's surge adds to what had already been impressive momentum. The spread between its 50- and 200-day moving averages is the widest in 3 years, which has been an excellent long-term sign for that index and the broader market.

FORECAST / TIMEFRAME
IWM -- Up, Long-Term

Out of all the major indexes, none are benefitting from the positive vaccine developments more than the Russell 2000 index of small-capitalization stocks. Despite a late-afternoon drop, they put in an impressive performance to start the week.

Even without Monday's massive rally, the Russell has performed well enough that its medium-term trend has jumped well above its long-term one, thanks to a kick-off surge in early October. Respected technician Helene Meisler noted that the 50-day average of the index has moved the most above its 200-day average since 2017.

While there have been wider spreads between the two trend measures, by the time it reached 8%, it has been a good sign for the index.

Returns were okay over the short- to medium-term but really shined over the next year. There were no losses out of the 11 signals, and the risk/reward was impressively skewed to the upside.

The good returns in small-caps reflected well on the broader market, too, after some short-term shakeout. Over the next 6-12 months, the S&P 500's performance was excellent.

Breadth figures on the NYSE are heavily influenced by small-cap stocks, so the jump in those stocks has helped trigger another round of extremely impressive breadth metrics. Last week, there was a cluster of breadth thrust signals and with Monday's addition, a Zweig Breadth Thrust was triggered.

This has become a "go-to" signal that has generated a kind of mythology around it, unfortunately. We discussed this repeatedly in the spring, and why using very specific rules is a big mistake. It was again because it narrowly missed triggering several times even while we were clearly seeing impressive thrusts.

If we use the rules that we're supposed to, but using our preferred metric of volume instead of issues, then it did trigger on Monday. To do so, the 10-day exponential moving average of breadth has to cycle from below 40% to above 61.5% within 10 days.

This kind of behavior is more typically seen after big declines, and not when stocks are at or near their highs. There have been a dozen that have happened when the S&P was within 10% of its peak.

Over the next 2 weeks, the S&P continued higher all but one time, but the medium- to long-term returns less impressive.

It's interesting to note that after these signals, small-cap stocks performed significantly better than did the S&P. The risk/reward over the following 6-12 months was remarkably skewed to the upside.

As we saw last week, 3 out of 4 sessions had seen overwhelming buying interest, with more than 80% of volume flowing into advancing issues. Monday added to that tally and made it 4 out of 6 sessions. That's never failed to lead to higher prices over the next 6 months.

Sticking with the small-cap theme, those stocks tended to enjoy even better returns.

Like we saw in October, short-term bursts like stocks have enjoyed over the past week aren't a very reliable signal for short-term traders to jump on board, as there is often a pullback as gains get digested. But the kind of intense buying interest demonstrated on multiple occasions since last week has a very good record at preceding further gains over a medium- to long-term time frame.


Active Studies

Click here to view the Active Research on the site.
Time FrameBullishBearish
Short-Term00
Medium-Term58
Long-Term502

Indicators at Extremes

Click here to view on the site (% Extremes and "Excess" tabs on the dashboard).
% Showing Pessimism: 8%
Bullish for Stocks

VIX
Inverse ETF Volume
SPY Liquidity Premium
Mutual Fund Flow (no ETFs)
% Showing Optimism: 35%
Bearish for Stocks

Smart Money / Dumb Money Confidence Spread
Intermediate Term Optimism Index (Optix)
Smart Money Confidence
Short-term Optimism Index (Optix)
Dumb Money Confidence
% Showing Excess Optimism
NYSE High/Low Ratio
Rydex Ratio
Rydex Money Market %
AIM (Advisor and Investor Model)
NYSE Arms Index
ROBO Put/Call Ratio
Options Speculation Index
ISE Equity Call/Put Ratio
Equity Put/Call Ratio
Retail Money Market Ratio
NYSE Available Cash
Equity / Money Market Asset Ratio
Mutual Fund Cash Level

Portfolio

PositionDescriptionWeight %Added / ReducedDate
Stocks15.6% RSP, 10.1% VWO, 7.5% XLE, 5.1% PSCE38.2Added 5%2020-10-15
Bonds10% BND, 10% SCHP, 10% ANGL29.7Reduced 0.1%2020-10-02
CommoditiesGCC2.4Reduced 2.1%
2020-09-04
Precious MetalsGDX4.7Added 5%2020-09-09
Special Situations0.0Reduced 5%2020-10-02
Cash25.0
Updates (Changes made today are underlined)

After the September swoon wrung some of the worst of the speculation out of stocks, there are some signs that it's returning, especially in the options market. It's helped to push Dumb Money Confidence above 70%.

A big difference between now and August is that in August, there was a multitude of days with exceptionally odd breadth readings. Some of the biggest stocks were masking underlying weakness. Combined with heavy speculative activity, it was a dangerous setup.

Now, we've seen very strong internal strength, in the broad market, as well as tech and small-cap stocks. Prior signals almost invariably led to higher prices. That's hard to square with the idea that forward returns tend to be subdued when Confidence is high, but that's less reliable during healthy market conditions, which we're seeing now (for the most part).

I added some risk with small-cap energy stocks, due to an increasing number of positive signs in both small-caps and energy. This is intended as a long-term position.


RETURN YTD:  2.0%

2019: 12.6%, 2018: 0.6%, 2017: 3.8%, 2016: 17.1%, 2015: 9.2%, 2014: 14.5%, 2013: 2.2%, 2012: 10.8%, 2011: 16.5%, 2010: 15.3%, 2009: 23.9%, 2008: 16.2%, 2007: 7.8%

Phase Table

Click here to view the Phase Table on the site.

Ranks

Click here to view on the site (Ranks tab on the Dashboard).

Sentiment Around The World

Click here to view on the site.

Optimism Index Thumbnails

Sector ETF's - 10-Day Moving Average
Country ETF's - 10-Day Moving Average
Bond ETF's - 10-Day Moving Average
Currency ETF's - 5-Day Moving Average
Commodity ETF's - 5-Day Moving Average

Sorry, you don't have access to this report

Upgrade your subscription plan to get access
Go to Dasboard
DATA &
TECHnologies
IndicatorEdge
‍
BackTestEdge
‍
Other Tools
‍
DataEdge API
RESEARCH
reports
Research Solution
‍
Reports Library
‍
actionable
Strategies
Trading Strategies
‍
Smart Stock Scanner
‍
FREE
RESOUrCES
Simple Backtest
Calculator
Simple Seasonality
Calculator
The Kelly Criterion
Calculator
Sentiment Geo Map
‍
Public Research Reports
‍
Free Webinar
COMPANY
‍
About
‍
Meet our Team
‍
In the News
‍
Testimonials
‍
Client Success Stories
Pricing
Bundle pricing
‍
Announcements
‍
FAQ
© 2024 Sundial Capital Research Inc. All rights reserved.
Setsail Marketing
TermsPrivacyAffiliate Program
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.