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The Run In Small Caps. Will It Continue In 2017


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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Guilty Until Proven Innocent

Just like a civil courts case, the market is now guilty until it can prove itself innocent.  Just as in January/February 2014, we are trading below a falling 20d, which to many, represents sellers there.

As the cases of Ebola continue in Africa, residents down here in Dallas are nervously watching the news for any indication of further spread from the Dallas infected.  It's tragic and unsettling.  While I prepare to fly to Chicago tomorrow for my daughters wedding, I must admit to already having thoughts "what if the infection spreads further here while I am gone?".  I've never been an alarmist however those in voluntary quarantine continue to take risks, going on airplanes and cruise ships, placing others at risk.  If more Ebola cases spout up in other cities, will people begin to stay in their homes and venture out less to theaters, malls, restaurants, bars, etc.?

The ECB announced they will begin their asset purchase program much sooner than expected after a raft of grim eurozone

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Small Cap Bullish Butterfly?

1290883?profile=original1290900?profile=RESIZE_480x480We've all watching the weakness unfold in small caps and I would question whether it is truly weakness or has merely been consolidating after running too far, too quickly.  One distinct possibility is that it has now formed a bullish butterfly as shown right (click image to enlarge).

The measurements using a fat crayola are there, although butterfly patterns can extend down to a 161.8% extension so further downside would not void the possibility.  It would merely wash out all weak hands by taking out the low before reversing.

If so, here is your entry to get long with risk being very limited with a stop (alert) below the lows......along with everyone else's.

I would point out that even though everyone has wondered if small caps divergence from it's large caps brothers, there are no negative divergences really when it comes to indicators.  If it were bearish, one would expect to see bearish divergences indicating a further decline. 

We are not witnessing that in small caps.  I am al

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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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