If you didn’t get the memo that small caps are in a new bull market… that’s OK.
The two-week surge has taken a lot of people by surprise.
And what could be even more surprising is the much bigger upside that’s right around the corner, based on the dramatic historical trend I’ve outlined for you today.
With the June CPI coming in ice-cold and the Trump Trade in full force, one rare, bullish omen fired last week…
And it means new leadership is set to take over, benefiting even the ugly duckling of the market: Real Estate stocks.
In fact, this thrust signal suggests we could be looking at over 40% gains for the Russell 2000 in the next two years.
Now let’s study the evidence…
Russell 2000 Surges to Highest Level in 2.5 Years
Small-cap stocks have finally started moving. In fact, on July 16, the Russell 2000 Index reached its highest reading since January 2022: 2,263.67.
Let’s put this rebirth into perspective. Below plots a five-year chart of the iShares Russell 2000 ETF (IWM).
This breakout is a long time coming:
What’s really interesting about this latest rip isn’t just the equalization wave that’s taking place. Rather, it’s the sheer intensity of the move.
Last Tuesday, the Russell 2000 ripped 3.5% in a day… something that rarely happens. Since 2012, it’s only occurred 27 times.
Below I’ve highlighted that up move on this chart of IWM in yellow:
This catapult affected a basket of 2,000 stocks… many of which have been sleeping for years.
Given the size of this move, I looked back in history to find out two things:
- First, how rare is a 3.5% or larger move?
- Second, what does the Russell 2000 do afterward?
If you’re still not convinced that the latest revival is real, this latest study should have you reconsidering that.
Back to 1984, there’ve been 107 times when the Russell 2000 gained 3.5% or more in a day.
That shakes out to roughly 2.5 instances per year… again, ultra rare.
But here’s why you need to pay attention to these signals. They indicate monster upside in all time frames.
Whenever the Russell 2000 surges 3.5% or more in a day:
- 3 months later, small caps jump 4.3%
- 6 months later, they gallop 12.2%
- 12 months later, you’re staring at an average 27.7% ripper
- 24 months later, and it’s a cool 40.9% rally
Look, I’ve been a devout bull on small caps for some time. Rates are set to fall and there’s further clarity in this year’s presidential election. Even after Biden’s exit shook up the race, Trump is still the odds-on favorite to win the White House, according to ElectionBettingOdds.com. And the market loves certainty.
Throw in the fact that this rare technical action suggests a healthy bullish tide is upon us… and we’re looking at one of the best small-cap setups in years.
Don’t buy into the fear-driven rhetoric the media likes to splash… It won’t make you money.
Instead, follow cold, hard data backed by evidence.
With smaller companies set to thrive in the months and years ahead, there’s going to be lots of new leadership to focus on.
That means new areas of focus like Financials, Industrials, Discretionary, and REITs have to be on your watchlist.
Get on the right side of what’s coming… That’s how you build wealth.
Regards,
Lucas Downey
Contributing Editor, TradeSmith Daily
His award-winning system pinpointed NVDA and META before both stocks doubled. Now it's flashing "BUY" on this under-the-radar A.I. stock. MORE HERE...
Source: TradeSmith