Are You Riding the Small Cap Rally Wave?

Just like a surfer who waits patiently for the best wave to carry them to shore, traders who ride sector rallies enjoy a triumphant feeling at the end of the day.

Every day at SheCanTrade, we scour the markets looking for trends to trade and low-risk, income generating options trades. If you aren't aware of the Small Cap rally, it's worth exploring now.

The Basics
The Small Cap U.S. stock rally in the first half of 2018 has been nothing short of phenomenal, and there's a good chance there's still more to ride on this wave.

What Makes a Small Cap?
A small cap stock simply refers to the market capitalization of a company.
           
Multiple the Stock Price x the Number of Outstanding Shares = Market Cap

  • Small cap stocks typically fall into the $250-$300 million to $2 billion range.
  • Mid-cap stocks include companies in the $2 billion to $10 billion range.
  • Large cap stocks are generally defined as $10 billion and above.
Other Unique Small Cap Stock Factors?
  1. Small caps are primarily domestic companies, or those that derive their revenue and profit stream from within the United States.
  2. Small cap stocks are considered riskier than large cap stocks, in part because they aren't as proven and don't have as strong a track record. Small cap stocks are more at risk of failure during a recession.
  3. On the flip side, small cap stocks are seen as having stronger growth potential simply because they are small companies. These are often younger companies battling to become big!
Small Cap Performance Year to Date
One of the benchmarks you can track to follow the small cap sector is the S&P Small Cap 600.
So how's it doing so far this year? It's been on fire!
 
                        S&P Small Cap 600     +10.93% ytd
                        S&P 500                      +3.94% ytd
                        Data through June 8.
   
Why Are Small Cap Stocks Rallying Right Now?
There's a couple of factors at play. Because small cap stocks are generally a domestic investment play, investors fearful of geopolitical and international risks pile into this sector for safety and growth potential.
  • The brewing trade war. Small cap stocks are benefiting from rising international tensions. Small caps only get about 20% of their revenue from overseas, compared to about 40% or higher for S&P 500 companies.
  • The U.S. dollar has been climbing this year. A stronger U.S. dollar can mean weaker profits for some big, multinational U.S. corporations.  A rising dollar can hurt profits at U.S .corporations that sell goods and services abroad in a couple of ways. First, the U.S. companies are paid in the foreign currency. That means when these companies bring home the foreign revenues, the profits are worth less once converted back into U.S. dollars. Also, a stronger dollar means those goods sold abroad become more expensive for foreign buyers. That can hurt demand. A rising dollar is neutral for domestic small cap companies, which is another factor driving fresh investment funds into the small cap arena right now.
Put the Odds on Your Side

When you trade with a trend – like the rising small cap cycle, you put the odds on your side.
At SheCanTrade we have helped thousands of traders learn to identify, pinpoint and execute winning options trades. Everyone benefits from a mentor – we even help experienced traders develop new, profitable strategies.

There are plenty of stocks we track with outsized income potential. Don't miss out on the big market moves set to unfold in the second year of the year.

Come trade with us! We are trading experts who want to help you succeed!

Happy Trading!
Sarah
 

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