Explosive growth

The Russell-2000 is the best measure of small caps and has the last two months outperformed the S&P 500 by 2-1. The last 10 months has been amazing for Russell 2000 which is up 37%. That is 12% better than S&P 500 which is up (only) 25%.

Small cap stocks have outperformed large cap stocks in seven of the past ten years by 40 percent. The earnings for the small-cap stocks rose by 9% (Russell 2000). S&P rose only 5% over the last twelve months.

When bond yield are rising, the history tells us that the small-cap stocks are outperforming. We saw Microsoft buying Nokia for $7 billion, but those two are blue chips stocks. Microsoft is not explosive enough. Small-cap stocks are, and they are in a great position for takeovers.

When the rumors for takeovers are in the market, the small-cap stocks prices are going wild. Now, it is a good time for many small-cap stocks to sell. It seems to be a good invironment now. Money is cheap now, but everyone know that the interest rate are rising, which means it will be more expensive to buy a company next year.

Many companies have been cautious with their money during the recesssion. They now have a stockpile of $2 trillion! That`s enough money pay some of the federal deficit in a few seconds. They can use the money to buybacks, dividende or M&A.

The thing is that companies want to grow, and that is fast. In addition; investors want to see the stockprice go up to heaven. But, it`s difficult to grow organically. That`s why Google bought Youtube. That`s why Facebook bought Instagram. They have both been growing, and the investors doesn`t cry over this kind of strategy.

Don`t forget the private equity firms that have hoarding cash now. They have about $1 billion in cash. They must spend $200 million the next months because that`s the rules. If they don`t do that, they must pay the money back to the investors. As you know; they will buy small-cap stocks.

I am looking for companies with strong financials. I am looking for companies that have a huge growth potential and I am looking for companies that is innovative, because that is attractive to the people looking for a takeover.

S&P 500 and the Dow rose yesterday as Republicans and Democrats in Congress showed early signs of a possible break in the impasse. The shutdown is in it`s ninth day, and President Obama invited lawmakers from both parties to the white house to discuss the government shutdown and raising the debt limit.

The VIX rose to 19,60 yesterday. A level above 20 is normally associated with investors anxiety and concern about the near-term direction of the market. Today I will look for these news: Unemployment Claims at 8:30am, 30 Year Bond Auction 1;01pm.

The volume was light on NYSE yesterday. 5,9 billion shares was changing hands. I will sit on my hands now until october 17. Just wait and see what`s happening. Russell 2000 was down 0,36% yesterday. Every time Russell 2000 breaks the 50 MA it rebounds. Will that happen again? Remember that we are at the all time high too. Take a look at the chart below:


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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