By Mike Merson, managing editor, Market Minute
While reading , something stuck out to me.
If you didn’t catch it on Friday, Jeff showed how the oil sector has been stuck in a well-defined trading range for the past few months. When these patterns occur, it can be profitable to simply buy the sector when it approaches and sell it when it approaches resistance.
Much like oil, there’s another sector that’s been range-bound for the past few months. And anyone who recognizes this can profit on predictable moves in either direction… and do better than the investors who simply bought and held.
I’m talking about the small-cap sector.
Small-caps have had a decent year so far. The sector recovered along with the other broad indexes in January, gaining as much as 22% at the peak in early May. But, notably, the sector hasn’t managed to make new highs like the S&P 500, Nasdaq, and Dow.
Right now, we’re looking just at an 11% year-to-date gain. That doesn’t sound troubling on its face. But, on a year-over-year basis, the sector is actually down 11%.
That suggests that small businesses are struggling compared to their large-cap peers. Anyone sitting in small-cap stocks can’t be happy.
Now, check out this chart of the Russell 2000 Small-Cap Index…
The Russell 2000 has been stuck in a 125-point trading range for the past five months. The 1575 level has acted as strong resistance, after the index failed to break through it in late February. Meanwhile, the 1450 level has acted as strong support from the low in mid-January. That pattern was confirmed when the index had a false breakout at the beginning of May, and got smacked all the way down to the previous support level.
So… much like the oil sector, traders can profit by buying the sector as it approaches support (the green circles) and selling when it nears resistance (the red circles).
Doing that, you would’ve bought when the index approached support at the end of May, and sold at the resistance in late July. Then, you would’ve bought when the index neared its support line in late August, and sold at the resistance line in mid-September.
That’s two trades for about a 7% gain each – handily beating the year-to-date performance.
Now, with the index up to the 1516 level after yesterday’s session, you should be looking for a chance to sell on any continued strength towards 1575.
Of course, this pattern won’t last forever. If the index breaks up out of the channel, for example, and then bounces off the previous resistance line, that signals a significant change in trend.
But for now, investors looking for a way of profiting on the small-cap sector should be trading it just like this… not buying and holding. That’s where the real profit potential is.
Mike Merson Managing Editor, Market Minute
P.S. All this year, Jeff’s kept a close eye on the small-cap sector… and came across .
Using a proprietary system, Jeff has found a way to spot massive breakouts in small-cap companies before anyone else. And while testing this system with his own money, Jeff has scored gains of 230%, 318%… even 601% in just a matter of months.
These gains might sound par for the course for someone like Jeff. But what’s strange is that doesn’t use options – Jeff’s claim to fame. It’s a whole new way to trade without worrying about things like expiration dates, strike prices, premiums… or anything like that.
I can’t reveal the details of this system right now. But Jeff’s putting on an exclusive presentation on October 23 at 8 p.m. ET to share what he’s found.
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