Biggest Small-Cap Opportunity Seen in Years is Here Now
The way to make money in stocks is to bet big when the crowd is uninterested.
That’s our playbook year after year.
The biggest small-cap opportunity seen in years is here now.
You can feel the change in tone the last few days. As inflation continues its death spiral, investors are finally coming around to the value offered by under-performing smaller equities.
With the Fed set to cut interest rates in the back half of 2024, the S&P Small Cap 600 has just pierced a fresh 2-year high.
It should be noted that betting on small-caps has been one of the biggest opportunities we’ve pounded the table on the last year:
- In late October, we outlined 3 reasons to buy small-caps
- Then in November our undefeated ultra power thrust triggered for the S&P Small Cap 600
- Next in December we showcased 3 beaten down sectors to own for 2024
- Then we told you how the small-cap meltdown is another bullish feather for the down and out group
- We kept going in March with more studies signaling new all-time highs would come for the group
- And to round it out, Alec Young just crafted a brilliant macro piece on why small-caps are still a smart play
All this evidence is to say that MAPsignals tries to prepare you well ahead of the biggest moves in the market. We try and not be grouped with the Johnny-come-lately crowd.
And here’s the best part: There’s a lot more gas in the tank for high-quality smaller equities. We’ve got a great data-driven study that signals even more gains ahead.
The mega-rotation that’s been in play for months is finally shifting to a broad-based rally.
New life emerging in smaller groups like Energy, Industrial, and Financial stocks have finally spread to just about all sectors.
We can see this supply and demand shift with our Big Money Index (BMI). Lately, it’s been jumping as outflows are finally being overpowered by fresh new capital going to work:
When the BMI starts to change trend, money is pouring into stocks. One look at the daily buys and sells shows this new sproutling of life occurring in the last few weeks.
Below reveals the data that makes up the BMI. Here are the daily counts of stock buys and sells the last 3-months.
The trough was made a month ago and since then new capital is rushing into stocks as selling slows:
What’s interesting about the above is the complete absence of buying witnessed at the April lows. That was then followed by healthy constant inflows.
The million-dollar question should be evident: What happens to stocks when we suddenly see monster appetite for stocks after a lull?
If you’re allergic to green, look away now.
The biggest small-cap opportunity seen in yeas is here now.
Now’s a great time to say a prayer for your bearish buddies.
So, why are we still bullish on small-caps even after the latest runup? It has to do with the sudden change in positive money flows.
When you look at the above daily buys and sells chart, notice how there were multiple consecutive days of healthy buys.
We define “healthy” as days where at least 60% of signals are inflows. Zooming in I’ve plotted the daily buy ratio over the past month.
Beginning on May 2nd, a string of consecutive buy days triggered:
Turns out this is a bullish omen for both large and small companies.
Over the past 10 years, whenever we’ve noted 6 or more consecutive buy days, market-beating returns are seen for the S&P 500 and S&P Small Cap 600:
- 3-months later small-caps gain 2% while large-caps jump 2.8%
- 6-months later they both lift 6%
- Be bold and hold for 12-months and the returns average 12.8% for smalls and 13.4% for bigs
Don’t fight the Big Money!
I should wrap up today’s bear-beating piece now…but there’s more pain coming for the doomers.
A rare setup favors small-caps in particular. When we enhance the above study by looking at 6 consecutive buy days in conjunction with the prior month showing weak buying, the forward gains are juicier.
To define “weak buying” we looked at rolling 20 trading day periods where more than half of the days had less than 60% buy days.
In other words, we wanted to see instances where large consecutive inflows were spotted coming off the heels of low buying… i.e. similar to what we are witnessing today.
The juice just keeps flowing because over the past 10 years when a rebirth in buying comes out of the blue:
- Small- and large-caps jump 6% and 5.6% respectively 3-months later
- Over 12-months, small-caps surge 15.8% on average, with large caps also gaining a respectable 14%
All of this is to say, keep riding this bull. MAPsignals subscribers have enjoyed some of the best stock picking opportunities we’ve seen in years.
Since October – March 5th, our Top 20 report included 2 showcased stocks each week. Those are focus stocks that we believe can outperform markets.
Those 46 single names have gained on average +35% hypothetically held through yesterday’s close. That’s the power of isolating incredible companies with massive money flow tailwinds.
And we believe there’s so much more to go.
Let’s wrap up.
Here’s the bottom line: Our constant reminder to buy small-caps hand over fist the last year is still in play.
Not only is our BMI set to soar in the coming weeks, brand new buying in stocks historically foreshadows big healthy returns for large- and small-caps.
When you single out large net inflows after weak buying, RIP bears. Small-caps are set to keep jumping.
But to really take advantage of this new setup, you have to focus on the specific stocks attracting capital. This is where having a market map comes in handy!
Tomorrow’s leading stocks can be found today.
If you’re a serious investor, looking for outstanding stocks not on the lips of the media, now is the perfect time to get started with a MAP PRO subscription.
Join many RIAs and money managers that understand the power that supply and demand has on the best stocks.
Go big in 2024 by betting small!
MAPsignals
Solutions - MAPsignals
MAPsignals’ volume and price analysis tools enable investors to identify unusually large trading activities around individual stocks and ETFs. This allows traders and investors to move beyond sentiment with a more precise, predictive, and measured data analysis tool that MAPs the signals being delivered by the market’s biggest players.MAPsignals capabilities include: Read more »
