Time to Look at Small-Caps?

As the stock market pulled back from its October highs, there’s no denying that small cap stocks have been the worst place to be invested. The Russell 2000 lost roughly 7.2 percent in the month of November, compared to the S&P 500 return of negative 4.2 percent. Increasing worries of the slowdown of the U.S. economy, which could possibly lead to a recession, has pushed many investors into more solid large cap companies.

The first week of December has been a breath of fresh air for the market, and especially small-caps. As new economic data comes in, many pundits are starting to re-evaluate the possibility of escaping a recession. If this turns out to be the case, small-caps could get quite a boost, and could possibly outpace the much loved large cap arena.

A few ETF’s that are ideal for a small-cap bet would be iShares S&P SmallCap 600 Index fund (IJR), Vanguard Small Cap Index (VB), or iShares R2000 Index (IWM). For even more leverage you can look to the ProShares Ultra S&P SmallCap 600 (SAA) which returns twice the daily move for the S&P Small Cap 600.

QQQQ’s Distribution Days and Blow off Top

As the PowerShares QQQ (NasdaqGM:QQQQ) moves higher, there are some warning signs that the recent bull market in the ETF could be losing steam. Since May, there have been 9 “distribution days”, where the fund sold off on increasing volume. Subsequent positive moves to the upside have been lacking any exciting volume, showing a lack of conviction in the market that the current uptrend will continue.

Especially worrisome are the past three days of trading, where volume in the fund has been significantly lower than usual, while hitting new higher ranges. Adding to this the enormous gap that needs to be filled from a few days back, we could see a mini blow off top in the short term.