Trend Signal Now: Deep Dive Into Small-caps

Sunday, November 24, 2024

Editor's Note: Click here to download the Hot Corner Insider Baker Bros FREE Special Report.

With the S&P600 Small-cap Index closing once again at a new all-time high, I think it makes sense to look sector by sector in order to find out exactly what's driving all this strength.

We already know that Small-cap Industrials have been a leader this entire bull market, outperforming even the S&P500 Large-caps and Dow Jones Industrial Average along the way.

So when people tell you that small-caps haven't been working, it's probably because their small-caps haven't been working. But there are plenty of these small-cap stocks that have been doing great this whole time.

Small-cap Financials, for example, have been ripping all year. Remember when they lied to you about a banking crisis? That was hilarious.

And so when I think "Small-caps", I think about a ton of Regional Bank stocks and even more Biotechnology stocks.

Together they make up a quarter of the entire Small-cap universe.

As you can see in the chart above, the Small-cap Financials Index and the Regional Banks Index look exactly the same. Because they are.

You can say the exact same thing about the Small-cap Healthcare Index and the Biotechnology index.

They look the same. Because they are...

So when we look at the Biotechnology Index on its own, you can really get a good idea about where this group is coming from.

Here is the Equally-weighted Biotech Index. I see a double bottom, a healthy consolidation and now the classic LFG pattern:

Breadth in small-caps continues to expand - even more so than we're seeing in mid-caps or large-caps.

That's just classic rotation and expansion that we see regularly during bull markets.

Go back and study all the bull markets throughout history, and you'll see very similar behavior.

So with all this rotation and strength coming into more and more small-cap industries, the question becomes: Which ones to we buy?

And this is especially the case in Biotechnology, where the dispersion among returns is the widest of any industry group in the market - by a long shot.

But fortunately, I've learned a few tricks over the past 2+ decades of doing this. And one of those is following the smart money.

And when it comes to biotechs, there is no hedge fund on the planet with a better track record than the Baker Bros. They are by far and away the best in the business.

The team at Hot Corner Insider put together a special report on all the things the Baker Bros are buying for their fund.

This is a can't miss deep dive into the best biotech investors of all time.

Check it out and let me know what you think!

Click here to download this FREE report on The Baker Bros.

- JC

JC Parets, CMT | Founder, All Star Charts

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