Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Investors Can Identify the Best Small-Cap Stocks

Companies / Investing 2015 Mar 02, 2015 - 11:16 AM GMT

By: Money_Morning

Companies

Sid Riggs writes: Since the October 2014 lows, the Russell 2000 (the broadest measure of the small-cap sector) has gained 18.09%.

To put it mildly, small-caps have absolutely been crushing the broader market over the last four-and-a-half months. Too bad the mainstream financial media would rather spook investors with the "what-ifs" of what is going wrong domestically and abroad.


Speaking of media coverage…

Remember back in September 2014 when the Internet and every major financial network was stumbling all over themselves to spell the end for small-caps because the Russell 2000 had just experienced the dreaded "Death Cross," a technical condition that occurs when the 50-day simple moving average crosses below the 200-day simple moving average?

I wrote an article at that time dissecting the truth behind the small-cap Death Cross.

And the verdict?

A whole bunch of hooey!

Investors who "short" the Russell 2000 during a Death Cross condition experience a dismal 25% winning percentage and an average return of a 0.97% loss.

Bottom line, the Death Cross is statistical a waste of time. It makes for good headlines – and a good way to lose money.

Another Cross Signals Profits

On the other hand, the "Golden Cross" (when the 50-day moving average crosses above the 200-day moving average) actually provides a much more valuable signal.

Investors who "go long" the Russell 2000 during a Golden Cross condition experience an impressive 78.13% winning percentage with an average return of 17.01%.

If you want to dig into those numbers a bit more here's the original article again.

Why am I running on about the Golden Cross? Because the Russell 2000 unceremoniously experienced a Golden Cross back on December 19, 2014 . You probably never heard a single peep about it from the same financial pundits who would rather spook you into reading when the Death Cross occurred.

Since then, the Russell 2000 has hit all-time highs and investors who've been invested in quality small-caps stocks are experiencing some very good returns.

Could we see a pullback (off all-time highs) in the near term?

Recommendations for Small-Caps

Sure, pullbacks are always a possibility.

Longer term, though, quality small-cap companies still represent one of the strongest wealth creation investments in the market – but not just any small-cap company.

It's important to make sure you're investing with global must-have trends that provide strong tail wind. My favorite sectors right now are biotech, cybersecurity, all-flash memory storage, artificial intelligence, and Chinese consumers – all of which either meet a critical demand for the future or are the future.

Already this year, subscribers in my Small-Cap Rocket Alert have pocketed gains of 200% on two separate occasions following two explosive biotech companies.

And things are just heating up.

Last week alone we experienced single-day gains of 27.4% and 9.4% on two non-biotech companies with disruptive technologies of their own that are re-writing how their respective industries operate.

But if investing in individual small-cap companies is something you're not comfortable with yet, here's a way to start.

You can invest in exchange-traded funds that hold several companies with exposure to key sectors. Not only will this give you exposure to key small-cap companies in the growing markets, but it will also lower the company-specific risk associated with investing in individual companies.

Some of my favorite ETFs right now are: PowerShares S&P SmallCap Hlth Cr Ptflo (Nasdaq: PSCH), PureFunds ISE Cyber Security (NYSE Arca: HACK), and Guggenheim China Technology ETF (NYSE Arca: CQQQ).

If you're new to small-cap investing, let's take a moment to talk about risk management.

If you're like me, the idea of uncovering the next Apple Inc. (Nasdaq: AAPL) is very exciting – but as compelling as a company is, it's critically important to make sure you don't bet the farm on any single company – ever!

Most professional traders limit their exposure to individual companies to 2% to 5% of their overall investable capital. Even then, they still typically run trailing stops on each stock in order to keep their overall risk at a minimum while still leaving themselves open to huge returns.

If you really want to make sure you have your risk management in order, limit your total small-cap allocation to no more than 10% over your overall investable capital.

In the 50-40-10 portfolio structure developed by Money Morning's Chief Investment Strategist, Keith Fitz-Gerald, we would refer to these riskier positions as our Rocket Riders, which are great risk-adjusted compliments to your Base Builders (50% of your holdings) and Growth and Income (40% of your holdings).

Source :http://moneymorning.com/2015/03/02/how-to-identify-the-best-small-cap-stocks/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in