Rare occurrences are, well… just that. Rare. That’s why they’re so fascinating, and maybe a little scary.
If you suffer from entomophobia – the fear of insects – one rarity isn’t so great. This spring saw a massive emergence of trillions of cicadas in certain parts of the U.S. It’s an incredibly rare occurrence, and these two specific broods of 13- and 17-year cicadas haven’t co-emerged since 1803.
The good news is you don’t have to worry about these bugs emerging at once for another 13 years.
Some other rare happenings are far less frightening, though.
Like a fire rainbow, essentially a cloud that’s taken on the colors of the rainbow.
Source: Pixabay
Or a corpse flower bloom that can take up to 10 years and only lasts one or two days. It does have an intimidating name – and horrible smell – but it’s so rare and beautiful that arboretums live-stream the events.
Rare occurrences don’t just happen in nature, though. They also pop up in the stock market.
Just last Saturday I talked about a rare – and odd – situation happening with the S&P 500. (If you missed it, check it out here.)
The 50 largest stocks were up 22.5%, easily outpacing the market-cap weighted 15.8% return, and more than four times the equally weighted gain of 5.2%.
Another surprising and sobering data point from the last few weeks: Nearly 60% of stocks in the index – or 300 out of the 500 – were below their 50-day moving averages. That’s a widely used technical indicator, and stocks below their 50-day are considered weak.
But like those cicadas, something else is emerging.
And it can make you a lot of money. Okay, so this emergence is not so scary.
Small-Caps Are Having Their Moment
I saw a big pin prick last week when the Russell 2000 tracking ETF (IWM) went up 3.59%. That’s an immense move and equates to about $93 billion in added value.
The next day, the index was up another 1.3% – about $30 billion.
Take a look at that breakout below on the IWM six-month chart:
Source: MAPsignals.com
It becomes even more significant when compared to that unusual Big Money buying I often talk about (green bars below):
Source: MAPsignals.com
This positive move has only happened 145 times since IWM came into existence in May 2000. Put another way, that’s only 2.4% of all trading days in the last 24 years.
So yeah, it’s really rare. And it’s really good.
Here are the average returns looking forward:
You can see that gives us a high probability of this breakout gaining momentum.
The other interesting thing that happened last week is the NASDAQ tracking ETF (QQQ) fell 2.19% in a day. That made the spread between IWM and QQQ 5.79%. My fellow TradeSmith analyst Luke Downey ran a study and found that spread is likely to widen. (We talked about it briefly in this week’s Power Trends+.)
It also means the top 50 stocks in the S&P 500 – those large-caps that have been carrying the index lately – are now overweight, and things are about to shift to small-cap stocks – those with a market capitalization of between $250 million and $2 billion. As interest rates fall, unloved small-caps will attract Big Money, and you’ll want to be in on it before that happens.
We’re also in an election year, and a potential boost to small-caps is a Trump win. This seems even more likely given the unfortunate and scary event that took place last weekend.
I’m not a gambling man, but it’s worth noting that after the assassination attempt, betting odds for Biden dropped to 15% and rose to 64% for Trump – propelling him to frontrunner status.
Here’s what happened to small-cap stocks when Trump won in 2016:
If Democrats do pull out a win, though, things are still in our favor. Here’s what happened to small-caps after Biden won in 2020:
Either way, if history repeats itself, small-cap stocks benefit during an election year… no matter who wins.
(A Trump victory is looking more favorable as we approach November, and I’ve put together a playbook of what that means for the market and how you can prepare for it… and make some money along the way. Stay tuned for that over the coming weeks!)
Get In on This Incredible Rally Now
Small-cap stocks are ramping up as we speak.
If you’re only focused on large-cap technology stocks, you could be missing out. Finding those rare stocks that are poised to win during this small-cap rally is more important than ever. And that’s exactly what I do for my Quantum Edge Pro subscribers.
If you’d like to leverage the power of my system and receive my handpicked stock recommendations, click here to learn more about a Quantum Edge Pro membership. You’ll also receive immediate access to our full portfolio plus my innovative Quantum Score tool, where you can score over 6,000 stocks with just one click.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
