Small-Caps Lead Charge as Trend Traders Win, Bears Crushed Again
Dip buyers brushed off headlines as the market continues to handle a host of concerns remarkably well.
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Dip buyers immediately jumped in following a soft open on Monday. Headlines about possible criminal charges involving Federal Reserve Chair Jerome Powell received widespread media attention, but investors largely shrugged and used the early weakness as an opportunity to add exposure.
By the closing bell, all of the major indexes finished with modest gains. The Russell 2000 led the way, producing the largest swing of the day and closing up 0.43%. The move marked a new all-time high for the index.
Breadth Improves as Small-Caps Strengthen
The strength in small-caps meaningfully improved market breadth. Approximately 53% of stocks finished higher, and more than 300 issues registered new 12-month highs. That type of participation suggests investors are not worried about speculative risk and are willing to look beyond the big-cap names. The Magnificent Seven (MAGS) is no longer the default choice for investors putting money to work.
Geopolitics Lift Oil but Not Volatility
Another major news item was the growing likelihood of U.S. military action in Iran in response to unrest and an expanding uprising. While geopolitical headlines can cause some distractions, there was little sign of stress in equities. Oil prices moved higher, but broader risk assets remained calm and constructive.
Strong Markets Stay Strong
Overall price action continues to look very good and once again is crushing the bears that can’t resist calling a top every time there is a new high. Strong markets tend to stay sticky near their highs, and Monday was a textbook example. Trying to anticipate a major turning point has been a losing strategy for most investors but they never seem to stop.
Events to Watch This Week
Consumer price index and housing data are scheduled for release on Tuesday and could generate a short-term reaction. However, it will still be another week or so before fourth-quarter earnings reports begin to meaningfully influence market direction.
There is also the possibility that the Supreme Court releases its tariff ruling on Wednesday. That decision could trigger a burst of volatility, but there is no practical way to anticipate the outcome or the market response in advance.
Staying With the Trend
The market continues to handle geopolitical news, valuation concerns, and ongoing debate about an AI bubble remarkably well. Those worries have been pushed aside as small-cap stock picking gains traction.
What is working is following the trend and staying disciplined. I plan to stick with the trend until it ends.
Have a good evening. I will see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
