2 Ultra-Rare Bullish Omens Say Buy Small Caps – November 16, 2023
If you thought the past 2 weeks of gains were impressive, listen up.
Today’s studies are a curtain call for the bears.
2 ultra-rare bullish omens say buy small caps.
The latest inflation news is causing extreme risk-on in equities. An ice-cold October CPI report showed prices held steady month over month and climbed 3.2% on a yearly basis.
This data was enough to ignite a ferocious stock rally as interest rates collapsed.
What happened under the surface of the market this week points to a lot more upside coming for stocks.
The prescient call to buy small cap stocks on October 26th is just the beginning of something much bigger.
You’ll want to hug a bear because the evidence points to exceptional returns in the months ahead.
Golden Hour for Stocks Rarely Lasts Long
I’ve learned to pound the bullish drums when bearish positioning is extreme. Time and time again, the Big Money Index (BMI) nails the trough.
After reaching one of the most oversold readings ever, equities are screaming higher. Since the October 27th low, the S&P 500 has juiced +9.36%.
Golden hour for the stock market opens and closes fast:
When the BMI is climbing out of oversold conditions, look out above! It’s telling you massive short covering is happening.
Forced buying episodes are rare. Tuesday’s bear-killer small cap surge was remarkable. Below shows the daily buys and sells in our data since the October low.
To the naked eye, it doesn’t jump off the chart:
When you study flows daily for a decade-plus, what occurred on Tuesday was epic. Here’s what jumped out at me:
- Tuesday’s rip amounted to a 98% buy day, indicating extreme forced buying by institutional investors.
- Tuesday’s +5.49% rally in the S&P Small Cap 600 is one of the best performances ever.
Looking back at history, these rare thrusts are some of the most bullish footprints you’ll find. Let’s prove it.
2 Ultra-Rare Bullish Omens Say Buy Small Caps
Let’s first tackle Tuesday’s action through the lens of Big Money. There were 167 stocks bought and 3 sold.
Going back to July of 2012, only 22 days has seen similar. For this study, I isolated days with at least a 98% ratio of buying vs selling where a minimum of 100 stocks fired a buy or sell signal.
To put this outlier footprint into perspective, 22 instances out of 2863 trading days equates to JUST .76% of the time.
Here’s what happens to small caps post this rare signal – prepare to unzip your bear suit!
6-months after this signal, the S&P Small Cap 600 jumps +12.6%.
12-months later they climb +31.6%!
You’ll also notice something else off to the right of this graphic. The BMI is usually overbought when these signals flash…not this time.
Tuesday’s thrust came alongside a near oversold reading of 32%, further adding weight to this data point.
But I don’t want to only use this study as evidence of more upside. Let’s now review the other rare bullish omen that flashed.
Tuesday’s +5.49% gain in the S&P Small Cap 600 is one of the best daily returns ever. In fact, going back to 1994, nearly 30 years of data – this small cap benchmark has eclipsed a +5% gain only 32 times.
If you believe these wicked rallies preface weak forward returns, look away now!
Below showcases the forward returns for the S&P Small Cap 600 after days where the index pops 5% or more.
If I were you, I’d print this out and stick it on your refrigerator.
After small caps gain 5% or more in a day:
- A month later small caps jump +2.6% on average.
- 3-months later they climb +4.6%.
- 6-months after you’re staring at a +14.4% ripper.
After boldly holding for 12-months, the average gain stands at a crowd stunning +44.1%!
I’ll keep it super simple: 2 ultra-rare bullish omens say buy small caps.
Not only does the data signal that the lows are in, we’ve been telling subscribers to load the boat well into this abundant life revival in markets.
As I’ve been harping for many weeks, we’re looking at one of the best stock picking environments I’ve ever seen.
Today’s multi-study post only enhances that stance.
Let’s wrap up.
Here’s the bottom line: History points to an immense rally in the months ahead. Tuesday’s wicked rally points to extreme short covering by investors.
Ultra-rare power thrust days signal 31% average gains for small caps a year later.
If that doesn’t impress you, after 5%+ daily rallies in small caps, the forward gains a year later clock in at 44%.
Author: Lucas Downey