The Indexes Are Hiding Fantastic Small-Cap Stock Trading

Rotation into the Russell 2000 Small-Cap Index  (IWM)  picked up momentum on Thursday. While breadth was mediocre with just 54% of stocks advancing, the Russell added 0.9%. But what was most notable was the large number of stocks jumping more than 10%. The pockets of momentum were very strong, with the longest list of 10% upside movers that I have seen in a while.

While many small-caps were flying, the Nasdaq 100  (QQQ)  was flat, and several of the Magnificent Seven  (MAGS)  names were in the red. The semiconductor sector  (SMH)  lost 0.7% while the Innovator IBD 50 ETF  (FFTY) , which is a growth-stock proxy, gained 1%.

This is the sort of action that the mainstream business media tends to overlook. It was tremendously strong in certain areas of the market, but hidden under the lackadaisical action in the major indexes. It is obvious that aggressive traders and stock pickers are shaking the trees and looking for stocks that may enjoy positive December seasonality.

Some bears will claim that this is late-stage activity, but if you are on the right side of it, the gains are big and fast. It requires some astute stock picking, but that is what we are here for.

Action like this can reverse very quickly, so it is important to make sure you are ringing the register on an incremental basis and keeping stops fairly tight. It can be tough to jump on a speeding train, and that is what we have with many of these smaller stocks right now.

Even if this action slows or there is a pullback, it bodes well for the rest of the year. Small-caps are finally exerting themselves, and their underperformance has been so severe for so long that they still have plenty of upside potential.

I don’t want to sound too bullish, but the price action is very good and is not terribly extended.

Have a good evening. I’ll see you Friday.

At the time of publication, Rev Shark had no positions in any securities mentioned.