Stocks Are Heating Up
But, as I mentioned before, April historically is a strong month for stocks. According to Ryan Detrick , chief market strategist at LPL Financial, "Other than my Cincinnati Bengals breaking my heart, few things are more consistent than stocks higher in April."
The market concerns, though, are still intact. We still have to worry about inflation, bond yields, and stocks peaking. According to Binky Chadha , Deutsche Bank's chief U.S. equity strategist, we could see a significant pullback between 6% and 10% over the next three months.
Another thing I'm a bit concerned about is the $2 trillion infrastructure plan. While this is great for America's crumbling infrastructure, do we really need to spend any more trillions?
Plus, how do you think this will be paid for? Hiking taxes- namely corporate taxes . Those gains that high growth stocks saw after Trump cut corporate taxes in 2017 could very well go away. While President Biden has indicated a willingness to negotiate his 28% corporate tax proposal, it's still a tax hike.
Russell 2000- Still Buyable?
I proudly switched my call on the iShares Russell 2000 ETF (IWM) to a BUY on March 24. I kicked myself for not calling BUY on the Russell after seeing a minor downturn during the second half of February and swore I wouldn’t make that mistake again.
We’re up to over 5% since then.
The climate right now supports the Russell 2000. The current economic policy is tailor-made for small-caps. The best part, though? The Russell is still very buyable.
The RSI is still hovering around 50. I also checked out the chart and noticed that almost every time the IWM touched or minorly declined below its 50-day moving average, it reversed.
Excluding the recovery in April from last year’s crash, 5 out of the previous 6 times the Russell did this with its 50-day, it saw a sharp reversal. The only time it didn’t was in October 2020, when the distance between its 50-day and its 200-day moving average was a lot more narrow.
Fast forward to now. The Russell 2000, despite its gains since tanking on March 23, remains right at about its 50-day moving average.
Aggressive stimulus, friendly policies, and a reopening world bode well for small-caps in 2021. I think this is something you have to consider for the Russell 2000 and maybe overpay for.
According to the chart, we may have found double-bottom support too.
Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care
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