Monday, December 29, 2014

Small Caps Finally Break Out

The IWM is the iShares Russell 2000 Index ETF, the RUT is the index itself.
IWM $121.01 up 0.47 (0.39%)
RUT   1,220.52 +5.31 (0.44%)
Following up on Dec.18's "Chartology: Watching the Small Caps For a Breakout (IWM; RUT)" and Dec. 13's "Mass Exodus: Dow Plunges 678 Points This Week, S&P 500 Suffers Largest Loss Since 2012":
We're still in a bull market, the underlying economy is supportive but unlike the 7 1/2% dip that bottomed in October or the earlier August break-fake, we didn't see this one coming.
And that is troubling as our models, going back to mid-August, were looking for a three-beat:
The Peak-to-Trough Magnitude of the Recent Decline Was 4.3%

I'd expect the next one to be deeper but also reward "Buy-the-dips" setting up a nasty little experience on the next-next one for folks coming in at down 10% who watch in horror as the drop doubles to 20%.... 
We'll have a lot more over the next few days. First though where things stand right now.
And for what it's worth we're looking at emerging markets, financials and small caps as potential buys....
From Bespoke Investment Group, Dec. 26, 2014:
After an amazing run throughout all of 2013, the Russell 2,000 (smallcaps) has been in a sideways consolidation phase over the last 12 months.....MORE

Possibly also of interest:

"Is The Small-Cap Premium Dead? Maybe… Or Maybe Not"
"No no he's not dead, he's, he's restin'!"
Sept. 16's "Morgan Stanley: Worst Beta-adjusted Period for Small-cap Stocks Since the Late 1990s" carried a warning:
I know what you're thinking but don't. These kinds of trends take a while to play out and there's no need to be early. If you miss the first few points of a turn, so what?
From SafeHaven:

Patiently Waiting for Mean Reversion...
While in Sept. 22's "Equities: How's About a Thousand Dow Points (to the downside)?" the little guys gave us a heads up on some of the turbulence to come.