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Small Caps are the canary in the coal mine 230505

We’re well into the 2nd Quarter and so far…NO RECESSION.  As such, the S&P 500 is meandering along just fine despite…Bank failures, Debt Ceiling drama, declining Profits, another Rate hike, stubbornly high Inflation, Ukraine Offensive, pending Taiwan invasion, Iran seizing two oil tankers, etc. [insert your personal fear]

This has been the longest anticipated recession that I can remember.  [Yogi Berra probably has an appropriate quote for situations like this.]

So, is everything hunky dory?  I don’t know.

Many things concern me about the Market, including the weakness of Small Cap stocks.

Note in the first chart, how Small Cap stocks tend to outperform the S&P 500 during periods of “greed”, whenever everyone’s feeling lucky and risk-on speculation is in fashion.  That was the case in 2021 when Pandemic stimulus money was plentiful and MEME stocks were the rage.

Since banks started to fail in mid-March, the Small Caps are again lagging.

Note in the second chart, Small Caps have been building a long base [that’s GOOD] but can’t breakout above the 200 day moving average (dma) [that’s BAD].

If the index remains below the 200dma:

  • A sustained uptrend can’t occur.
  • The probability for further decline remains high.

So…I remain concerned about the overall health of the Stock Market.

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