Chart of the day: why small caps are getting ready to rise

It could be on the verge of a new rally, as a market rebate in favor of domestic equities is likely to build on their underperformance in the field of YTD.

Small cap companies are generally immune to retaliatory measures that internationally-facing organizations can face if trade negotiations fail, making them more attractive as uncertainty about potential rates increases.

Yesterday, all four major US indices were sold out for the fourth day, with the dramatically lower opening that aggravated the risk, as the hope appeared to be an impending Phase I agreement of the long-awaited US-China trade agreement. .

On Monday, US President Donald Trump struck Argentina and Brazil with rates and began to view Europe for the same. This set the market tone for the general trade theme, showing that the US has not reversed its policy compared to its president's ragged approach to what he considers an uneven trading platform.

However, there is a silver lining for investors. All four indices closed their lows well, eliminating most losses and ending the session at their opening prices. This buying dip shows demand and even potential accumulation when smart money is purchased at low prices because it believes that prices will hold and even rise.

Last week we argued that small caps are best positioned for a rally because of their longer undervalued position compared to large caps. Our graph analysis agreed with that fundamental assessment and suggested that the current dip only played the bullish pattern and even strengthened support.

Russell 2000 Daily Chart

The fall plunged into the falling, bullish flag between November 5 and 25, but eventually closed right above it, establishing the supposed demand above the bullish pattern. The only concern is that the meter slipped below the upward line from the bottom of October 3. However, this is limited by the knowledge that flag formations often deviate from trend lines because they represent temporary interruptions of the general trend.

The 50 DMA crossed above a rising 200 DMA – formed an exceptionally dramatic golden cross – amid the falling channel development, demonstrating bullishness across the board, as individual technical triggers agree.

The MACD and the RSI show that the price is ready for a downward correction, justified by the current sell-out, which pushed prices under the upward trend. However, both the RSI and the MACD remained above their previous lows, made when the index reached the bottom of the flag on November 21.

This support by the MACD (which demonstrates that a wide range of prizes offers support) and the RSI (which demonstrates that the momentum persists) confirms and reinforces the prospects for a new rally.

Trade Strategies

Conservative traders would wait to reach a level above the level of November 27 to prove that the upward trend has survived.

Moderate traders probably want to see price returns above the upward trend.

Aggressive traders now risk a long position, provided they understand the risks.

Trade sample

Listing: 1,597
Stop loss: 1,587
Risk: 10 points
Target: 1,627
Reward: 30 points
Risk: reward ratio: 1: 3

Note: An example shows the components of a trade plan. The trading success is measured by the total trade, not on the basis of a single transaction. Both the risk and the reward can be changed based on risk aversion.

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