Overtime

Small Caps

Good morning,

This week, we’re taking small caps into Overtime.

In case you missed it, yesterday’s Playbook covered the breadth thrusts, forward returns, and base case technicals for the Russell 2000.

We won’t rehash those charts here but wanted to use this report to expand on small caps and most importantly, opportunities on the long side.

We’ll cover:

• Small-cap growth vs. value

• Sectors and ETFs leading the recent charge

• 5 individual stock trade ideas

Let’s get into it.

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Small-cap growth vs. value

Small-cap value has slightly outperformed amid recent surge

The long-term trend within small caps favors small-cap growth, however, small-cap value has led recently. Since June 27, the Russell 2000 Value ETF is up 10.8% vs. +7.1% for its growth counterpart.

The real message is that both are working

As shown above, the more important message is that both styles within small caps are working. Both have cleared major resistance, hit 52-week highs, and are making 3-month relative highs vs. the S&P 500.

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Leading ETFs

Favor the Russell 2000 over “profitable” small caps

I cite the Russell 2000 more in my chart packets because it’s a broader index and frankly, more popular. But when choosing an ETF, you have other options like IJR, which tracks the S&P Small-Cap 600. S&P indices only include profitable companies, so it is no coincidence that the top panel looks more like small-cap value. But relative to IWM (bottom panel), IJR is in a downtrend and days removed from a 52-week low. Choose IWM over IJR for broad small-cap implementation.

XBI: SPDR Biotech ETF

We’ve owned XBI in Ultra-Growth for months and added it back to the Balanced portfolio at the beginning of this month. Fortuitous timing, as that kicked off an 8-day win streak. The relative chart has broken out and I expect XBI to join its large-cap counterpart (IBB) at new 52-week highs soon.