TAKEAWAYS
- Cooling CPI data sends equities roaring higher
- The 10-year Treasury yield fell below 4.5%, a critical support level
- Small-cap stocks were clearly the biggest winners today
October's unchanged headline US CPI and lower-than-expected core CPI were reasons for investors to celebrate. The broader stock market indexes moved higher on the news, and the Fed may start to lower interest rates sooner than expected. All 11 S&P sectors are up, and small caps are seeing a massive rise—up over 5%. This is welcome news, as this group struggled to reach the highs large caps reached. Perhaps it's catch-up time for stocks that have been severely beaten down.
CHART 1: THE STOCK MARKET ON TURBOCHARGE. Large caps, tech stocks, small caps, and mid caps all rallied today.Chart source: StockCharts.com. For educational purposes.
The Bond Market
Treasury yields are lower, with the 10-year yield trading well below its 4.5% threshold. Bond prices are seeing signs of life, with the iShares 20+ Year Treasury Bond ETF (TLT) up 2%. TLT is trading close to 90. Meanwhile, the US dollar broke lower, which generally means investors are risk-on.
CHART 2: TREASURY YIELDS AND US DOLLAR FELL WHILE BOND PRICES RALLIED. The rally spilled over into bonds, which may be seeing a reversal in their long-drawn downtrend.Chart source: StockCharts.com. For educational purposes.
Real Estate Shines
Lower Treasury yields helped the Real Estate sector, the leading sector in the Sector Summary. Several stocks in this sector—SL Green Realty Corp. (SLG), Vornado Realty Trust (VNO), and Brandywine Realty Trust (BDN)—have some big range candlestick bars today. One REIT chart that looks compelling is that of Extra Space Storage (EXR). The stock gapped up and moved above its 100-day moving average.
Small-Cap Stocks are Showing Signs of Revival
In addition to REITs, small-cap stocks also benefit from lower interest rates. After previously being slaughtered, this group of stocks is seeing a significant jump, rising more than 5%. The chart of the iShares Russell 2000 ETF (IWM) reflects the action in the small-cap stocks. Although one day doesn't make a trend, it's worth watching this sector, given it has the potential to rise quickly.
CHART 3: SMALL-CAP STOCKS ENJOYED A SPECTACULAR RALLY. The iShares Russell 2000 ETF (IWM) gapped up and closed much higher than its open. The big candlestick today is encouraging and indicates that perhaps it's time to add small-cap stocks to your portfolio.Chart source: StockCharts.com. For educational purposes.
Investing in IWM is a great way to gain exposure to the small-cap sector. You could also identify the top holdings in IWM and invest in some of those. For example, the top three IWM holdings by weight are Super Micro Computer, Inc. (SMCI), Light & Wonder (LNW), and Rambus Inc. (RMBS). All three stocks have a high StockCharts Technical Rank (SCTR) score (panel above price chart).
CHART 4: TOP HOLDINGS OF IWM. SMCI, LNW, and RMBS may have some upside momentum. Chart source: StockChartsACP. For educational purposes.
The relative strength index (RSI) for SMCI is moving higher and shows there is room for more upside move. RSI for LNW is above 70, but just barely, and the stock did move higher a few days ago, which could mean the stock price could see a pullback. RMBS gapped higher today and is pretty close to its all-time high. If the stock pushes through the high and continues higher, it could move higher. After all, it is a semiconductor stock.
There are several other small-cap stocks you could explore. Hopefully, today's spectacular rally in small caps nudges you to dive deeper into this group of stocks.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
Happy charting!
