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More pain ahead for small-caps, Credit Suisse says

  • Small-cap stocks enjoyed a bit of a bounce yesterday but they've lagged the broader market this year, and Credit Suisse predicts more pain ahead.
  • Even though many individual growth stocks have been hit much harder, the Russell 2000 has dropped only ~9% from its early March 2014 peak; average and median pullbacks in the Russell 2000 since the mid-1990s have been a respective 21% and 14%, so Credit Suisse thinks the historical track record points to the Russell approaching 1,000 (vs. its YTD peak of 1,209 and Friday's close of 1,097) before finding a bottom.
  • The iShares Russell 2000 ETF (IWM) is down ~5% YTD, with its biggest losers - MLI, MDSO, FNGN, ISIS - all plunging at least 40% so far.
  • Meanwhile, the S&P continues to hold up relatively well, and Citigroup’s Tobias Levkovich thinks easier lending standards for bigger companies is an important factor explaining large-cap outperformance; Bespoke sees large-cap stability holding just as much weight as the argument that weakness in momentum names eventually will spill over to the broad market.
  • ETFs: IWM, TZA, TNA, UWM, VB, VBK, URTY, SCHA, TWM, IWO, RWM, SRTY, DWAS, VTWO, JKJ, FYX, VTWG, UKK, SKK, EWRS, JKK, TWOK, SMLV, PXSC, FYC, PXSG
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Comments (16)
  • ostrowsr
    , contributor
    Comments (75) | Send Message
     
    Find out who is manipulating the prices and prosecute them.
    10 May, 08:28 AM Reply Like
  • june1234
    , contributor
    Comments (2689) | Send Message
     
    yeap agree another drop then back up
    10 May, 09:19 AM Reply Like
  • heywally
    , contributor
    Comments (191) | Send Message
     
    The R2K index could well take more of a plunge but in the long run, it has outperformed both the SPY and DIA ETF's, though not the QQQ (thanks largely to AAPL.) It also did not crash out much more than the other indexes during the meltdown years of 2008 - 2010.

     

    And, since it moves much more than these other indexes, it is the perfect buy-the-dip vehicle, since you can get away with putting less cash-at-risk (you might want to use TNA instead of IWM) into it - more bang for buck.

     

    In other words, historically, buy the dip in very small scales (up to some conservative total and maybe avoiding buys during the more elevator plunge type of selling) during weakness like this and scale out into the inevitable strength later. That is what usually works. But, if you want to trade anomalies and fight all of the forces that have vested interests in keeping the markets stable .....

     

    Shorting the R2K successfully involves much more nimble and short term action.

     

    Even though Credit Suisse has a crystal ball.
    10 May, 09:29 AM Reply Like
  • Purple_K
    , contributor
    Comments (488) | Send Message
     
    "Shorting the R2K successfully involves much more nimble and short term action."

     

    -I find using TZA the simplest and most cost-effective way to do this. That, and it has a lot of action, if that's your game
    12 May, 08:34 AM Reply Like
  • heywally
    , contributor
    Comments (191) | Send Message
     
    Shorting not my game but another reason to use TZA is that you can put less cash at risk (cost effective.)
    12 May, 11:34 AM Reply Like
  • Purple_K
    , contributor
    Comments (488) | Send Message
     
    Um, yes - that's what I meant when I wrote it :)
    12 May, 04:34 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4091) | Send Message
     
    If they would know what happens they would make money without having to rig it. Clearly they don't.
    10 May, 09:31 AM Reply Like
  • King Rat
    , contributor
    Comments (724) | Send Message
     
    You mean I'm being lied to by those guys who say they can teach me to turn $1000 into $49000 as long as I give them $100 first?
    10 May, 12:00 PM Reply Like
  • Charles Moscoe
    , contributor
    Comments (1625) | Send Message
     
    Credit Suisse is pretty much wrong about everything always. Great contrarian indicator. I went short the Russell the first week of March but this is overdone. Too many retail shorts right now, time to get long a rebound.
    10 May, 10:37 AM Reply Like
  • hajimow
    , contributor
    Comments (57) | Send Message
     
    Don't look short term that market is down 4% or so in the last month. Look at the broader picture. Market has more than doubled in the last 3 years.Don't just look at 2013. Also include 25% market up in 2012 and another some crazy percent up in 2011. Also on average market does not go up over 7% in a decade. So the conclusion is that market will surprise everyone when 95% do not expect it.
    10 May, 01:56 PM Reply Like
  • leopardtrader
    , contributor
    Comments (1187) | Send Message
     
    I respectfully disagree with CS here. I believe this is the time to get long Stocks as we have just witnessed a huge correction in the market without adverse price movement. This shows how resilient the market is. Here is my current take on why we are ripe for a big rally in weeks/months ahead http://stks.co/q0JD0
    10 May, 03:01 PM Reply Like
  • Tom Shaughnessy
    , contributor
    Comments (1131) | Send Message
     
    Stick with micro-caps then, low/no institutional ownership means no pressure to sell.
    10 May, 06:30 PM Reply Like
  • C.N
    , contributor
    Comments (197) | Send Message
     
    200 day breached by Russel, so you will see small caps get hit more + ETF's not helping the situation. Will be a buyer here. After the summer, small caps will move higher.
    10 May, 09:03 PM Reply Like
  • StepUp
    , contributor
    Comments (473) | Send Message
     
    Only twice before has the RUT closed under its 200dma on the same day the INDU made all-time highs; late 1999 and early 2008. It's only twice - not a trend - but something to be aware of nonetheless.
    11 May, 12:33 AM Reply Like
  • tjn6175
    , contributor
    Comments (33) | Send Message
     
    I like a conservative buy the dip on SP600 IJR small cap. Maybe now and each 5 percent down (OK, maybe this is too optimistic!). I agree with heywally, the smalls will lead to the same bottom, only faster, and then rebound to a higher top, only faster. Faster gain, less skin in the game. Of course, past performance is no guarantee....
    11 May, 01:18 AM Reply Like
  • heywally
    , contributor
    Comments (191) | Send Message
     
    FYI - IJR is one of the commission-free ETF's available at TDAmeritrade. I like that one too ....
    12 May, 11:36 AM Reply Like
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