Putting together some really interesting studies on a flat to negative Russell 2000 (Russell down 1.44% YTD) and its influence on the rest of the market over the next 12-18 months. I'll be publishing the data in my client letter that will be posted here in early October.
This has been a difficult quarter for the small-cap universe. I haven't been spared the lashings despite my attempts at agility through selective rotation out of weaker names and either into cash or names with stronger footing. Liquidity has been especially atrocious, which leads me to believe that, as is so often the case in the tri-dimensional vortex that can become of small-cap investing, companies with market caps under $500 million are simply leaking equity due to disinterest more than actual "real" selling.
The ramifications for investors are simple: You either believe this is a buying opportunity, taking advantage. Or you believe that this is a harbinger of an eroding foundation beneath the markets, lessening exposure.
For the time being, outside of the Russell, there are plenty of developments taking place that warrant the attention of investors. Here is a symphony of thoughts:
- AAPL is tracing out a volatile, above average volume consolidation that typically signals a stock that is ready for a break. The IPhone 6 and 6plus are now out. Inevitable criticism of their new product as well as a short-term hole in new products to announce typically lead this stock into negative territory. Price action seems to be suggesting that weakness is on the way.
- In looking through my list of stocks on a nightly basis, if I didn't know any better, I would think all averages are having a negative year. I don't typically follow market breadth, but the recent rally to all-time highs seems extremely narrow. Institutions that dominate this market are increasingly focused on a handful of large and mega-cap favorites, leaving behind a chem-trail of inefficiency in the small to mid-cap complex. To not take advantage of this foolish. Markets will rotate, as they always do, away from what seems indestructible for the moment into the already destroyed.
- The Nasdaq Composite is exhibiting the type of erratic behavior that brings with it a weak market over the short to intermediate term. Generally speaking, the setups in large cap tech are disadvantageous for deploying new money. Too much risk is needed for a very mediocre potential reward that has the potential to be taken back in one swoop as demonstrated earlier this past week.
- Some of the bargains I am beginning to spot in the small-cap world are ridiculously attractive. However, I don't want to jump the gun into a market that has not marinated in misery for long enough to reward forward thinkers. So I'll wait. That doesn't mean I am not salivating at the prospects. But....being early is the same thing as being wrong.
- FB continues to exhibit one of the cleanest patterns in large cap technology. In January I said that FB would be a $100 stock by the end of this year. I think the earnings report in October will go a long ways towards getting the stock towards that target.
Be careful out there. It's almost October.
