• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

Small-Caps See a 'Realization' Day

With the NAFTA deal, investors suddenly gave up on small-caps, even though they've been sliding for months.
By HELENE MEISLER
Oct 02, 2018 | 06:00 AM EDT

The story of the day was the small-cap stocks, a topic near and dear to my heart. Some might say I have not stopped harping on this subject for months (they would be correct!). But it seems that Monday was a bit of a Realization Day as everywhere you turned people were discussing the collapse in the Russell 2000.

(A Realization Day is when folks finally realize 'why' something which has been moving for weeks/months is moving. In other words, now they have a 'story')

Up until about a week ago the narrative I heard was that small-caps had outperformed all year because of the Trade Wars. Each time I heard that comment I would look at the chart of IWM relative to the S&P and see the decline since June and wonder, what the heck are these folks talking about?

Then came Monday's NAFTA deal and despite the early surge, the Russell could hardly get out of its own way. I think it took less than an hour for it to turn red. By the end of the day the narrative had become that you can't/shouldn't own the small caps because of NAFTA.

So we were supposed to own them until Monday? Yet small caps have under performed since June. I guess there is nothing like price to change sentiment.

Let's take a look at the chart I have shown here countless times in the last 3+ months, IWM relative to SPY.

This ratio peaked in June just over .61, right at the Russell rebalancing and has been heading downward ever since. It had that small uptick in August (nothing goes down in a straight line) and then came September which was an absolute swoon in the ratio. No one cared. Not until Monday that is.

My contention all along has been that this ratio tends to trade in a range, with the red line being the top and the blue the bottom. If we went back even more than five years you would see that sometimes we exit the range (see early 2016 for example) but we tend to come right back into it.

I have said that I thought as this neared the bottom of the range we would probably find small caps attractive again. The bottom of the range is .56; we are at .57. That might seem close, but it takes quite a lot to get that last move.

Now that everyone has decided that small-caps are not the place to be we will probably see an uptick in the ratio before heading down again. However overall, we are much closer to the bottom of the range than we were even just last week.

In the meantime the number of stocks making new lows expanded once again and as I'm sure you saw breadth was not good. The best news was that the put/call ratio was 101% so that makes two consecutive days with the ratio over 100%, meaning the giddiness we saw two weeks ago is evaporating.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Stocks | U.S. Equity

More from Investing

The Indexes Are Holding Support, but That Is All

James "Rev Shark" DePorre
Mar 28, 2023 4:40 PM EDT

The biggest gainers were China-related names Alibaba, PDD Holdings Inc., and JD.com.

How LOW Will This Chart Go?

Bruce Kamich
Mar 28, 2023 2:50 PM EDT

Shares of Lowe's are retreating on the charts, so buyer beware.

Home Depot's Charts Reveal a DIY Downtrend

Bruce Kamich
Mar 28, 2023 2:07 PM EDT

It looks like overall housing trends may be throwing a wrench in the prices of HD.

In This Market, Walmart Offers Investors One-Stop Shopping

Brad Ginesin
Mar 28, 2023 1:43 PM EDT

WMT may not be a 'value stock' but in a choppy market, it is a supertanker sailing steadily ahead.

Are You Chomping at the BITC for a Direct Exposure Bitcoin ETF?

Mark Abssy
Mar 28, 2023 12:27 PM EDT

Let's take a close look at the Bitwise Bitcoin Strategy Optimum Roll ETF, its exposure to bitcoin, and ... Contango.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:00 PM EDT CHRIS VERSACE

    AAP Podcast: This Solar Company Is a Head-Turner

    Listen to my interview with Brian Roth, CEO of sol...
  • 01:56 PM EDT PETER TCHIR

    Very Cautious

    I am very cautious here. I don't like how the c...
  • 08:58 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How to Adjust Your Trading Style as Market Conditi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login