It is highly unusual for the infantry to gain nerve and follow the generals but that may be what is happening with small caps and its Mega Trend*. As the accompanying chart illustrates, the most recent multi-year bull trend that started in 2016 (green arrow) ended in the fall of 2018 (red arrow). Since then, unlike its large cap brethren, small caps have not rallied toward their all-time highs. The Mega Trend solidly in bear form...until now.
The current price break above its moving averages (MA) and the potential break of the 50 day MA above its 200 day MA bears (pun intended) close watching. To be clear, it is unusual for a Mega Trend to reverse direction in such a short period of time. The 2016 to 2018 run was more typical. Nevertheless, should a bear to bull call result in the coming weeks, it must be respected (with the 3 month reversal provision kept in mind*).
The real economy justification for such a reversal was noted several posts ago (2020 rate of growth of earnings). Therefore, small may become beautiful again. And the good times will roll on...and on and on.....
*see previous posts for description and more information.
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