U.S. small cap stocks offer a particularly attractive investment opportunity in the current market environment.
Small caps are attractive from a fundamental perspective given the fact that most of the companies that make up the small cap universe are focused on the domestic economy. This has particular appeal at present given the relatively stronger growth outlook for the U.S. relative to the rest of the world. And if the U.S. economy is indeed accelerating, U.S. small cap stocks stand to benefit the most and tend to lead the broader market in such an environment.
U.S. small cap stocks also set up well from a technical standpoint for a variety of reasons. First, small caps have been in a steady uptrend since late last year. Also, the asset class enjoys an extensive netting of technical support at a variety of levels, providing considerable downside support. This includes the upward sloping 20-day, 50-day and 100-day moving averages as well as the long-term trend line, all of which have provided technical support on a number of occassions over the past six months. U.S. small caps are also seeing accelerating momentum and improving relative strength. Moreover, in the last two trading days, small caps broke out above a two-month trading channel, suggesting further upside may lie ahead in the coming weeks.
A long position was recently established in U.S. small caps via the iShares Core S&P Small Cap ETF (IJR). The initial upside target is set at $99.15, which would be around the top end of the new higher price channel and represents +6% upside from current price levels. The initial time horizon on the position is between 15 to 45 days. Initial downside tolerance is set on the position at the upward sloping 50-day moving average, which is currently at $90.05 and represents -4% downside from initial price levels but will diminish as this support level continues to rise. Of course, all of these initial target levels will be subject to adjustment and fine tuning as the position evolves in the coming trading days.
This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.