«If earnings hold up, small caps offer an attractive valuation.»
Coach Tyler here. As an avid follower of the Russell 2000 Index, I’m a sucker for any chart pitching a bullish future for small-caps. History tells us that smaller public companies tend to underperform on the way down while outperforming on the way up. The logic makes sense. If market sleuths sniff out a recession on the horizon, they’ll abandon riskier stocks first. Smaller companies often lack the balance sheet and earnings prowess to weather an economic downturn. Thus, small caps usually fall furthest in a bear market. Such has certainly been the case this go around. While the S&P 500 fell just over 20% from peak to trough, the Russell 2000 tumbled 31%.
As a result of the outsized decline, small caps are trading cheaper than their larger brethren (see the chart of the day below). And while the discount may prove justified if we experience a deep recession, it won’t if we don’t.
And, just in time for today’s highlighting of the relative cheapness of small-caps, the RUT closed above the 50-day moving average on Tuesday. Well done, bulls.
Video of the Day: Gino’s Gems – Cash Account vs Margin Account in Thinkorswim (TOS)
In today’s Gino’s Gems, Coach Gino Poore teaches cash account vs margin account in Thinkorswim (TOS).
Chart of the Day: Small-cap valuations at all-time relative lows
The silver lining of this year’s defeat in small caps is the cheap valuations in the offing for those shopping the little guys.
Today’s line up
Traders Lounge 11 AM EST
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The Coaches Show Replay
If you missed last night’s episode with Coach Tyler Craig where he talked about the S.T.E.P. Swing Trading System or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Trade Masters 7:00 PM EST
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Trading Justice 479: Interview with Marie Stankus
In episode 479 of the Trading Justice podcast, the boys welcome Marie Stankus to discuss her journey as a trader, why she loves cash flow systems, and theta in general.
Before that, Coaches Mark and Matt Justice take a journey through the market skyline to discuss the current market conditions and debate the market bottom, inflation, and many other topics!
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