Beating a Shutdown with Small-Caps

Even amid the idiocy of a government shutdown, it's difficult to get aggressively bearish when small-cap and momentum names are working so well. October 03, 2013     Beating a Shutdown with Small-Caps   Small vs. Big: It ain't even close… Ditching the Dow for monster gains Plus: The FBI and a Bitcoin breakdown   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner Even amid the idiocy of a government shutdown, it's difficult to get aggressively bearish when small-cap and momentum names are working so well. Right now, the big averages just aren't telling the whole story… While the Dow Jones Industrial Average has barely squeezed out a 2% gain over the past month, the small-cap Russell 2000 has gained more than 6%. And that's just over the past four weeks. Even when big, negative news events like a government shutdown appear to derail the market, the strongest groups of stocks have essentially ignored the situation entirely. On the first day of the shutdown, the Russell clocked a new high. But the S&P and Dow were nowhere to be found. This is just the latest chapter in small-cap outperformance. Aside from the Dow briefly taking top performance billing in April, small-stocks have scorched their larger cousins. Most didn't even miss a beat during either broad market pullback in June or August. Even the post no-taper swoon couldn't rattle the Russell… Traders have enjoyed countless opportunities to ride small caps to big gains over the past several months. Heck, even longer-term minded investors have amassed incredible track records using small-cap strategies over the past year… Even if you haven't touched any smaller names at all this year (but seriously—you'd have to be clinically insane to ignore this sector) you can still use the Russell as a market bellwether. If small-caps truly are the canary in the market's coal mine, it's not time to sell everything and run just yet… [Ed. Note: I'm giving my PRO readers two ways to play small-cap strength today. Here's how you can get onboard right now…]     Rude Numbers Targets, Predictions and Wild Guesses   $930 million is how much Monsanto just shelled out to buy climate analytics company Climate Corp. Monsanto plans to utilize Climate Corp's tech to predict weather and other essential elements for the agribusiness. 1.36 billion hours of music were played on Pandora in September. For the same perod, the internet radio company also saw a 25% increase in active listeners from 58.3 million to 72.7 million. $29,900 is the starting price of a new Mercedes CLA coupe, making it the first Mercedes in the U.S. with a starting price of under $30,000. More than 2,300 CLA's were just sold in its first week of availability alone. 1,680 is where you'll find S&P futures this morning. After clawing back near breakeven yesterday, the market looks like it will open slightly in the red today… $124 buys a Bitcoin this morning. The crypto currency plunged 15% yesterday after the FBI raided a popular online marketplace that uses Bitcoin. More on this below…     Rude Trends When to Buy... When to Sell   Off in a hidden corner of the internet, an operation called Silk Road acted as an online marketplace for drugs and other illegal items. Buyers and sellers on the site used Bitcoin to help maintain anonymity. As Silk Road grew in popularity, it became a major Bitcoin customer. According to TechCrunch, $1.2 billion in Bitcoin flowed through Silk Road, resulting in a nearly $80 million commission for the service. But as of yesterday afternoon, Silk Road is shuttered—probably for good. The FBI apparently took an interest in the site, raided it and arrested its founder. The feds also seized 26,000 Bitcoins, according to various reports… This is not a good development for Bitcoin, even beyond the immediate impact of the sharp price drop the raid helped trigger. Over the past couple of months, Bitcoin prices appeared to have stabilized. That quiet period might be finished. Also, we should expect more government scrutiny of the alternative currency. The feds will argue that the currency is only used for illegal activity. It wouldn't surprise me if they used this rationale as an excuse to attempt to shut down Bitcoin completely—or at least curb its use in the U.S. In the meantime, more hidden marketplaces will emerge. The FBI will play whack-a-mole. As for Bitcoin prices, I see additional volatility in their immediate future… [Ed. 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