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Stocks: Why Small Caps Bear Close Attention

Here's an early sign of vanishing investor liquidity

by Bob Stokes
Updated: July 02, 2019

Most every stock investor knows that the three most widely followed U.S. indexes -- the Dow Industrials, S&P 500 and NASDAQ Composite -- are near record highs.

However, this is not the case with some other indexes.

The June 24 U.S. Short Term Update provides insight into one of them:

500 vs Small Cap

The S&P 600 Small Cap Index made their countertrend rally high in late-February and tested this high in early May. They have not been higher since. ... The weakening trend in the small caps bears close attention, since this sector is higher beta than the blue chips. ... A concerted decline in the small caps is an early sign of vanishing investor liquidity.

Of course, liquidity in the stock market refers to how quickly and easily shares can be bought or sold without excessively affecting the price. In illiquid markets, prices for buyers and sellers are often unfavorable.

So, not every stock market sector has been participating in the rally. And there are others besides the one just mentioned.

Indeed, the June 26 U.S. Short Term Update discusses another key sector which not only lags the broad market now, but also did so prior to the historic 2007 top.

Moreover, the just-published July Elliott Wave Financial Forecast shows you how the performance of the S&P 500 index stacks up against some other major global stock indexes. In this publication -- you'll get more important insights into what our analysts see ahead for the U.S. stock market.

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Are You Ready for the "Big One"?

What does it matter if an investor rides a bull market for all it's worth, if the market takes back the gains in a very fast downturn?

Worse -- what if the downtrend turns into a massive net loss?

This will likely be the situation many investors will face at the bottom of the next bear market -- which EWI's analysts believe may well be the history-making big one.

Indeed, the very first chart in the just-published July Elliott Wave Financial Forecast is titled "The Big One," and rest-assured -- it's a must-see.

You can be reviewing this chart (and more) in just moments via a risk-free trial. Look below to learn more ...


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