Are Small Caps Ready to Take Off?
Its been a great September so far as the market reacts well to a more dovish Fed after jobs numbers for the past year were revised lower and inflation data came in lower than expected.
We are seeing some of the best price action we have seen in a few years on top stocks that fit the profile of the stocks we like to trade.
This month we have seen CRDO, APP, STRL, CRWD, RDDT soar 15% to 35% shortly after been featured in the alert service to reach profit targets already in many cases.
If you are using the rapid account growth videos and instruction to find and trade A+ setups for rapid growth, you were alerted when IONQ reached the entry point taught in the course on September 12th. The stock soared over 50% in just over a week after reaching the entry trigger taught in the rapid account growth videos.
HRTG just got off to a great start out of the same pattern on Friday. PL was a nice winner that is still in play and today we had a huge winner in KOD. KOD showed tremendous strength after meeting all our rules pre-market and soared 20% from the entry trigger within a couple hours while the market was falling.
APP is one of the big winners in the service and is up about 35% from our initial entry trigger within 3 weeks and reached the profit target earlier this week.
The quantum stocks are jumping and we got into the leader at just the right time using the rapid account growth instructions.
The price action has been terrific. Especially after market pullbacks. We are seeing a lot of stocks hold very tight stops just below good technical entry points. STRL is another one off to a great start after being featured as a top pick last Monday and has already reached the profit target for a nearly 20% profit.
This is all occurring before we even get to the best time of year to swing trade which starts in October. This fall and winter could be a truly great period for our strategies.
In todays blog post, I’ll explain why.
Is the Market too Expensive to Trade Long?
A lot of investors think the market is way over valued, has gone up too far and must come down to earth. For some reason, 22 times next years earnings for the S&P 500 is just too much for them.
At the beginning of the year we talked about how the S&P 500 was trading at over 20 times next years earnings and our reaction was – so what? We pointed out how the S&P 500 got up to around 35 times earnings in 1999 after a long bull market. In fact, the Nasdaq was much higher than that at the time.
So what did the market do from there? It took off, of course. It was a life changing trading environment for long traders from October of 1999 to March of 2000. A period where the Nasdaq nearly doubled in about 6 months. The S&P 500 did not finally peak until the fall of 2000.
So by avoiding a long-term bull market that had a high valuation, you missed one of the best trading environments of all time. If not THE best period of all time for swing trading.
Today, the Nasdaq is nowhere remotely close to the 150 times earnings it was trading at near the peak in March 2000. In reality, current valuations may suggest that its just getting good now for swing trading.
Another thing we pointed out at the beginning of the year is that market P/E ratios tend to make higher lows and higher highs over time as the bull market wears on. You can see how this played out in the 1990s.
But it really does not matter for short term swing trading. Our A+ setups for rapid account growth have a 2.5% to 4% stop-loss.
And they only come up about once or twice per week with an average duration of 1.5 to 3.5 days whether you can either go for the long ball or a quicker but very nice profit. IONQ, PL and HRTG are 3 that met all the strategy rules over the past couple weeks. The strategy tends to do well even just before a market correction.
Market valuation is almost irrelevant when using these strategies. They tend to do better as the long-term market trend strengthens as it is now for small caps which is really exciting.
The Longest Consolidation in Market History?
If that does not convince you to start preparing for what could be a tremendous fall and winter, keep in mind that small caps are completing one of the longest consolidations in history.
This is the second longest consolidations for the Russell 2000 small cap index in modern market history. The Russell 2000 is essentially where it was at the peak in November 2021. That is a long, 4 year consolidation it is finally breaking out of.
Some experts are calling for a potential huge move in small caps over the next several years. Falling bond yields and interest rates could trigger small caps to finally catch up to large caps after many, many years of underperformance.
If this happens, we could see one of the best market environments for swing trading our strategies of all time. Its important to note that “small cap” does not mean lower price. The best small caps and mid caps will be over $25.
The Fed has already started to cut rates. Instead of cutting into a recession, initial jobless claims continue to average in the low 200,000s. This is far below the average of over 300k throughout 2007 which was a year before the 2008 crash.
The final Q2 real GDP was revised up to 3.8% today while the Atlanta Fed GDP Now forecast is for 3.3% real growth in Q3. So the Fed is cutting into an at least OK period for the economy with plenty of stimulus. Historically, this has led to an average 15% return over the following year with no down years.
So this is the time to be prepared for the months ahead as we head into the best time of the year for stocks historically. We continue to stick with A+ setups as we have plenty of those with even more 2nd tier opportunities. So you may want to raise the bar in your own strategy heading into Q3 earnings season starting in 3 weeks with so many to choose from. It could be a great Q3 earnings season.
As with succeeding at anything, its all about preparation.
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