E Small Cap Best And Worst Report - October 16, 2014

Since 2010, the average return for our weekly best scoring small caps has outpaced the R2K by a median 759 bps over the following year. The best performers from one year ago are HA up 63%, GTIV up 62%, and ARII up 58%.

  •   Utilities are the top scoring small cap sector.
  •  The best small cap industry is home healthcare.

As we reported in last weekend's report, signals suggest small cap stocks are increasingly attractive with a solid upside bias into year end (see later in today's report for a recap).

The average small cap score is 46.22 this week, below the four week moving average score of 48.59. The average small cap is trading -32.93% below its 52 week high, -10.40% below its 200 dma, and has 10.50 days to cover held short. Short interest is near historically actionable levels.

The following chart shows small cap scores since 2010. Scores are nearing levels coincident (post-recession) with actionable lows.

That is backed-up by the all-cap average universe score, which is also nearing actionable levels.

Consolidation supports home healthcare (AFAM, GTIV, AMED) stocks. Demographics continue to battle with reimbursement challenges, suggesting scale will remain critical. P&C insurers (STFC, MIG) offer upside on P&C pricing strength. Staffing (CCRN, KFRC) demand historically picks up through the holiday staffing season, providing tailwinds to related companies. Management (CRAI, NCI) and business services (FURX, ARC) round out our best scoring small cap industry ranking this week.

No small cap basics baskets score above average this week. Processed & packaged goods (KTEC) and auto parts (SRI, SMP) score highest in consumer goods. The top financials baskets are P&C insurers, regional banks (CFNL, TCBK), and investment brokers (GFIG). Home healthcare, medical instruments (CMN, VASC, ANGO, LMNX, ICUI), and drug related products (AUXL, NAII) are best in healthcare. In industrials, concentrate on industrial electrical equipment (BGC), aerospace/defense (ORB), and heavy construction (MTRX, GVA). The top services groups are staffing, management services, business services, and trucking (SAIA). Business software (MSTR, NTCT, CSGS), computer peripherals (PLNR), and application software (ACCL, TYPE, PRO) are best in technology.

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