37% average gains by next year⦠[TradeSmith Daily]( The Small-Cap Meltdown Is a Hidden Buy Signal
By Lucas Downey, Contributing Editor, TradeSmith Daily Every money manager Iâve ever respected had a process. Whatever the market would throw at them, they would have a plan to respond. If inflation is out of control, they might dial back their stock exposure. If markets were flashing oversold signals, maybe theyâd aggressively buy beaten-down stocks. Whatever angle they took was grounded in a framework of stacking the odds in their favor. I try to do the same. A fisherman canât predict when theyâll get a bite. They just keep casting out the line, waiting for the rare nibble that comes before a big catch. The same can be said for trade setups. Sometimes you scan the market waters and itâs quiet. Other times, the data signals a prime opportunity to reel in a monster. A recent example is Tuesdayâs market meltdown after the hotter-than-expected CPI report. (Check out my thoughts on inflationâs path from last week, [right here]( Small-caps in particular, as measured by the Russell 2000 ETF (IWM), fell 4.1%... their single largest one-day fall in over a year. Turns out these big selloffs in small caps are not only rare… they offer a forward outlook youâll want to note. As always, donât take my word for it. Iâll share all the proof with you today. But before we dive into this awesome study, letâs review what got us here to begin with. RECOMMENDED LINK [Elon Muskâs Massive âAI Upgradeâ to Shock Markets](
After years of âbehind the scenesâ development, Elon Musk is ready to unleash a massive upgrade for artificial intelligence. It could create a new class of ultra-wealthy Americans. Wall Street Legend â Louis Navellier â will show you how to take full advantage. [Click here for details](. The Biggest 1-Day Selloff in Over a Year
Itâs been a while since markets saw a day like last Tuesday. All the major indices were down, but small caps were punished the most. Below youâll see what I mean.
With fears of rising inflation perking up again, smaller, less-capitalized firms got smacked. Fast money traders took the opportunity to sell first and ask questions later. But I had a few questions once the dust settled:
- How often does IWM experience a 4% or greater drop in a day?
- What can we expect going forward?
- Whatâs the positive hit rate on the forward performance?
This level of detail will help us build a case for what may lie ahead for small caps. If youâre hoping for an end-of-days, bear-fueled result, look away now! Because believe it or not, big washout days often precede powerful rallies… What Happens Next?
To answer these three burning questions, I pulled all daily returns for IWM and sifted for days when the fund dropped by 4% or more. Prior to Tuesday, itâs occurred only 50 times since 2000. After IWM falls 4% or more:
- Small caps jump 5.8% three months later…
- They leap 12.6% six months later…
- And they soar an awe-inspiring 37% 12 months later. Whatâs also impressive is the winning percentage, which only grows over time. Six months after this rare signal hits, youâre staring at a 76% chance of success. Out to 12 months, itâs an 84% hit rate. This data tells me, loud and clear, that we should treat last weekâs selloff as a buying opportunity. RECOMMENDED LINK [Elon Muskâs âA.I. 2.0â Could Leave 800 Million Unemployed.](
Maybe youâve seen Goldman Sachsâs forecast that the $15.7 trillion A.I. revolution will impact 300 million jobs. But Elon Muskâs âA.I. 2.0â is already forcing organizations to ramp up those estimates. Now McKinsey analysts say it could leave 800 million unemployed, as Wired.com says 70% of occupations could be replaced. Where could you and your family stand in all this?
[Get details here](
While the mainstream media distracts us with inflation fears, historical evidence points to a strong likelihood of better days in the near and long-term future. Go ahead and cast your small cap net. This study suggests the fishing is good. Evidence-based research like this is why TradeSmith can help you navigate uncertain waters. These big dips often lead to bigger rips… But you have to be in the best stocks. For more on that, I recommend you check out [TradeSmith Investment Report](. My colleague and good friend Jason Bodner has been recommending only the highest-quality stocks in the strongest uptrends for his subscribers. Thatâs prudent right now, with markets being so volatile… And Jason has an extra edge with his Big Money scanner, which [isolates the rare few stocks that major Wall Street institutions are buying in droves]( even when the broad market falls. TradeSmith Investment Report is the best way to build a high-quality stock portfolio in minutes. [Go right here to learn more about it.]( Regards, Lucas Downey
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