The 'back to school' rally in stocks that started on September 1
caught more than a few investors off guard. After all, following a
summer of refreshingly calm market volatility few expected that
stocks would jump all at once and march higher in a seemingly
relentless push to reach annual highs.
But they did - and so long as you had exposure to stocks - of
any market cap class - you were likely to see your portfolio rise
15 percent, or more.
I'll pass on the easy opportunity to explain why small cap
stocks, like those in the S&P 600 Small Cap Index, were the top
performers over this period - if you've been a reader for long you
already know why (
Why do small cap stocks ALWAYS outperform? Read
this to learn more
It's more important right now to dig into
sectors of small cap stocks have been outperforming, and why. Armed
with this knowledge we can then seek out individual stocks in these
sectors that could rise in the coming months and years.
***I'll let you in on one of my tried and true methods for
breaking down the market and picking out the fasting moving
sectors. I can do this in less than two minutes - not accounting
for the time I spent building my MS Excel based model.
I'll bet you can do it in less than 20 minutes - a pretty
insignificant amount of time when you consider how powerful the
knowledge can be.
My trick is based on spotting ETF trends - but not just any
trends. I follow small cap sector trends in particular, and compare
those to large cap sector trends.
Doing so lets me see what sectors of the market are moving, and the
comparison of small caps to large caps lets me know if the move is
broad-based, or whether I need to consider other factors.
Broad based rallies are the easiest to invest in because you
don't need to over-think it. Find the right sector, buy the
strongest stocks in that sector, and you're off to the races. It's
about as easy as it gets.
I start with the PowerShares Small Cap Sector ETFs, which
launched in April of this year. Then compare their returns to
Select Sector SPDRs ETFs - both companies have 9 ETFs that are
designed to track the 9 sectors of the S&P indices.
***Since the back to school stock market rally kicked off on
small cap energy stocks have handily outperformed, rising 46.3
percent. They have beaten large-cap energy stocks by 21.8 percent.
Keep in mind I'm comparing ETFs here - so there is some noise in
these returns from trading volume, expense ratios, etc. But for my
purposes of trend spotting I'm not remotely concerned about small
impacts like these.
This trend is telling me to buy energy stocks, and I recommend
you do the same. Why? Because this is what's working right now.
Remember, don't make it to difficult when trend-spotting - there's
plenty of room for that when checking out fundamentals of
Second on my list are technology stocks. Small cap stocks in
this sector have outperformed by rising 30.9 percent since
, besting large cap technology stocks by 12.2 percent. You should
buy solid small cap technology stocks now.
Third on our list are materials small caps - they've risen 27.9
percent and have outperformed large-cap tech by 10.9 percent.
Here's the entire table of sector ETF returns, and relative
outperformance of small cap stocks, as measured by these particular
groups of ETFs, since September 1
You can calculate all of these returns yourself, whenever you
want and over whatever time period you like, by looking in the
'historical prices' section on
. To get ,
click here to get the returns for XLES
, and then just input whatever ticker symbol you like in the call
box on the upper right side of the screen. You can set the date
range, and then scroll through the prices to find the date you
This simple trick will help you spot trends, and if you use if
on a regular basis as I do, you'll be able to jump into the market
with greater confidence that you are buying into the right
There is one caveat you need to be aware of however, all trends
end! Nothing lasts forever, so don't expect that past performance
is predictive of future results - it's not. But most trends tend to
last for a while, and using this method you can spot them early,
and help you invest accordingly.
Why are silver mining companies the hottest group in the
industrial sector right now?
You can learn all about silver mining opportunities, and why these
stocks are soaring 100 percent or more in just months, by reading
Legend of the Sierra Madre Occidental.