Small Cap City

Written by GSCR Staff   
Tuesday, 19 March 2013 09:25

 

Good morning!  We hope everyone enjoyed hoops over the weekend, now the real tournament begins.  All the college basketball ‘experts’ say it is more wide open this year than ever.

 

Along those lines, the real question for all those who trade, invest, or just follow Wall Street is will this run continue?  Figure 1 shows the Yahoo! Finance chart of our small cap barometer,  the iShares Russell 2000 Index ETF (NYSE – IWM - $94.75) in blue, compared to the three major US indexes, the Dow Jones Industrial (DJI in red), the NASDAQ composite (IXIC in green), and the S & P 500 (GSPC in gold). 

 

Figure 1: 1-Year Chart for IWM compared to 3 major US Indexes

 

 

 

IWM is up over 14% for 2013 so far and over 23% since mid November.  Notice the trends are the same for IWM and the three indexes, but as expected, the peaks and valleys for the small cap ETF are the highest and lowest.  The question for us is, are we still climbing in the small cap world or not?

 

From a purely technical perspective IWM remains a very bullish play in the short term overall and in the intermediate and long term as well according to the chart analysis.  From a price/value perspective the Russell 2000 is at an all time high, but trading at just under 15x earnings, still about one point lower than previous peaks.  And finally, M&A activity has picked up in 2013 with 13 deals so far in larger companies acquiring small caps.  This is a great way to get a huge spike if you hold the right stock, as generally the related small cap skyrockets on the announcement of any deal.

For these reasons we remain bullish for small caps.  We hope to provide you some as many good picks as possible and appreciate your visiting our site! 

 

Have a great week!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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