Small Cap Stocks

Much verbiage is expended on emerging market stocks, and rightly so. They are doing very well indeed. But if you think on it, an emerging market stock is likely to be a small capitalization stock. And if you look at well-chosen US small caps you see that they are doing as well this year as their look-alike emerging brothers. US equities have always been thought of in Europe in a sense as "emerging" market stocks. But now US small caps are doing as well as emerging market stocks "IN DOLLARS".

 

Comments

[jb]

Tom,

Great point! Perfect example of missing the obvious (a least for me).

I enjoy your blog and consider it a "must read".

Thanks

jb

[Maria Venczel]

Hello,
I am just new to this blog, and I would like to know what is 2CS?
Thank you

[Tom Drake]

Welcome, Maria.

Briefly, the 2CS of bearish sentiment is the five day running total of each day's product of CBOE VXO and each day's CBOE combined P/C ratio. These data are posted each day from 1-2 hours after the market closes at:

http://www.cboe.com/data/mktstat.aspx

If you look down the left hand column under the monthly archive listings you'll see 2CS posts fairly frequently over the years and occasionally some graphs.

It's a very, very simple indicator of sentiment which has been very useful to me for over a decade.

Tom

[Owsley]

Last time the market turned, the 2CS was around 87.

I have it now at 85.xx. Will this and several other factors lead to another pullback?

[Tom Drake]

Owsley,

I really think 2CS is going into the 70's this time. I could be wrong, but there is a big gap in futures up to about 1103 and the 50% level of the bear market retracement at ~ 1120-1125.

I'm planning to lighten up even more on stocks and bonds and buy more gold. I'm not making recommendations for anyone else, just stating what I think and do for my own accounts.

I've been pretty loyal to this bull trend, and a real reversal looks more probable to me than at any time since March 9.

http://screencast.com/t/SIKBXLFJMd

[Joe]

Tom,

I would hold off of gold short-term. I think we hit overhead resistance and go down a little for a couple of weeks or so. But then it's again a big buy.

BTW now crude is launching too.

Joe

[Owsley]

Tom,

If I've done the math correctly, the 2CS is now at 83.43.

I use a special oscillator that's been very good at spotting tops and bottoms and I've been using it to swing trade these rallies and pull backs. If the market closes either flat or red tomorrow, this oscillator will give a sell signal for the $SPX. It's been hovering near the sell zone all week.

A big green rally tomorrow will extend this oscillators current, very weak buy/hold signal.

I'll up date you after the close tomorrow.

[Tom Drake]

More later this weekend, but I think we may be getting closer. Some follow-through strength in stock indexes next week should nail it. As always that is a big "IF", but probabilities are rising for the first time.