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The last time small caps broke out of a multi-year base like this, they crushed large caps by over 20% in the following year.

That same setup is forming right now. And almost nobody is paying attention.

I get it. Big tech has been the easy trade for so long that looking anywhere else feels like a waste of time. But the market has a funny way of punishing complacency.

In this piece, I'm breaking down the two most likely scenarios for stocks over the coming months. 

More importantly, I'll show you why both paths lead to the same destination: small caps.

The Cracks Are Showing
 

On the surface, everything looks fine. Stocks are near all-time highs. Earnings season is here. Precious metals keep ripping.

But spend five minutes under the hood and you'll see problems.

Most of the Magnificent Seven are underperforming. Tech has been stuck in a rut for months. The names that powered this rally are running out of gas.

When leadership narrows like this, it usually means rotation is coming. Money doesn't leave the market. It just finds a new home.

Two Ways This Could Play Out
 

I see two realistic scenarios from here.

Scenario 1: The Melt-Up
 

Earnings crush expectations. Stocks rip another 10% and suck in every last buyer.

Sounds great, right? Sure, if you're already positioned.

But a move like that would leave the market extremely overextended. We'd be due for a 5-15% correction. The smart play isn't to chase. It's to sell into the strength.

Scenario 2: The Endless Grind
 

The sideways chop we've seen since September drags on for another two months.

Imagine that. Eight more weeks of going nowhere.

By Q2, most traders would either turn bearish or just give up. Sentiment would be in the gutter.

And that's precisely when the market would bottom. It loves to move when nobody's looking.

Small Caps Win Either Way
 

Here's the thing that makes this interesting.

Whether we get the melt-up or the grind, the best opportunity is in the same place: small cap stocks.

While large caps have been chopping around, the Russell 2000 just broke out of a multi-year base. Years of underperformance created a coiled spring. Now it's starting to release.

The fundamentals back this up too.

Rate cuts help small caps more than large caps. Smaller companies carry more floating-rate debt, so lower rates boost their margins faster.

Valuations are stretched to extremes. Small caps trade at historic discounts to large caps. Even basic mean reversion could drive serious outperformance.

And the strongest setups I'm finding right now? They're almost all in smaller names.

This week I booked an 82% gain on MBX, a small cap biotech, in the Trinity Trade. That's not a fluke. The opportunities are everywhere if you're willing to look.

How to Play It
 

If scenario 1 happens, use the rally to rotate out of crowded large cap trades. Let others chase the last leg higher in big tech. You'll already be positioned for what comes next.

If scenario 2 happens, use the chop to build small cap exposure gradually. Accumulate while everyone else loses patience.

Different paths, same destination.

The Bottom Line
 

2026 is setting up to be the year of small caps.

The technicals are there. The fundamentals support it. Sentiment is still skeptical, which means there's plenty of room for buyers.

Most traders are still anchored to the mega-cap names that worked the past two years. They're fighting the last war.

Markets evolve. The winners of one cycle rarely lead the next.

Don't be the one watching from the sidelines when this rotation kicks into gear.

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