The senior indexes only managed small gains Monday, but there was a frenzy of buying in the small caps that have been lagging since February.
Breadth was three-to-one positive, and the Russell 2000 ETF (IWM) gained 2.6% to $233.94, which left it just under the February high of $234.53.
The indexes have been misleading for much of the year, but this time they mislead about the extent of the strength in secondary stocks. There was a parabolic move higher in Tesla (TSLA) , which took it through the $1,200 level, but the other FATMAAN names were mixed at best.
There were dozens of stocks up more than 20% today, with names like Mountain Crest Acquisition Corp II (BTTX) , Desktop Metal (DM) , Super League Gaming, Inc. (SLGG) , and Humacyte Inc. (HUMA) leading the charge. It actually felt rather frenzied at times as traders jumped on the speeding locomotives.
As I discussed in my prior post, this is a picture-perfect technical breakout for the Russell 2000. It is even more powerful as it occurs in conjunction with positive seasonality and earnings reports. It actually looks so good that you have to wonder who well it will perform.
At this point, the best thing that can happen is a pause and then a pivot higher. The thrust, pause, pivot pattern is what helps a technical breakout to gain momentum
While this action is looking very good, it is important to maintain discipline and not be sloppy with new buying and locking in profits. The goal is to stay aggressive but to hold on to gains and not give back too much when a pullback occurs.
I see lots of great opportunities developing, and very few small caps are as wildly extended as something like Tesla.
Have a good evening. I'll see you tomorrow.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider some of the names here to be microcap and some small caps. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.