SHREWD IDEAS

MARKET MUSINGS

Had to shoot you a quick note.

You know how we’ve been talking about how everything lately has felt like chasing the same seven stocks? Apple, Nvidia, Microsoft... rinse, repeat. Well, I just spotted something under the radar that could actually be the start of a serious shift.

The Russell 2000—the small-cap index that’s basically been in a coma—just broke out above both its 50-day and 200-day moving averages. That’s not nothing.

Even more interesting?

We’re days away from a golden cross, which is when the 50-day moving average crosses above the 200-day. It's one of the oldest signals in the technical book, and while nothing’s guaranteed, it usually shows that momentum is flipping in a big way.

Want more confirmation?

The Russell 2k versus S&P 500 chart (above) just crossed above and retested the 50-day moving average. Meaning the Russell 2k is starting to outperform the S&P 500.

It’s one of those quiet, early signals the big money starts to notice before the headlines catch on.

Here’s what’s wild: small caps have been dragging for years. They missed the AI party. They got crushed by rising interest rates. They’re tied more to the real economy, and that’s been under pressure.

But that’s exactly what makes this moment interesting.

Because now things are starting to tilt the other way.

Why This Might Be the Turning Point

• The Fed is done hiking. There’s talk of rate cuts coming this quarter. That’s rocket fuel for small-cap stocks because they’re more sensitive to borrowing costs.

• They’re dirt cheap. Small caps are trading at huge discounts to large caps on almost every metric: price-to-earnings, book, sales—you name it.

• The chart just woke up. We haven’t seen this kind of technical breakout from the Russell 2000 in a while. Combine that with improving macro conditions, and it feels like something is brewing.

• Small caps benefit greatly from AI. They are just beginning to see the impact of AI on their business, amplifying productivity to new levels. All those jobs everyone is worried about being replaced by AI? Mostly at smaller companies…

And historically, when this setup happens—small caps moving above both their key moving averages and printing a golden cross—it doesn’t just fizzle out.

It tends to run.

When It Happened Before

Each time this has happened before, it has been during the recovery from a crisis. The catalyst this time?

Trump’s Trade War

This spooked investors dropping the index by over 30%.

So, what happened other times this setup occurred:

• 2003: Russell 2000 up 46% in a year

• 2010: +30% after the GFC

• 2020: +44% post-COVID crash

In each case, the recipe was the same: fear, slowdown, then Fed easing... and suddenly the smallest companies were the biggest winners.

Could this be another one of those inflection points? It’s starting to smell like it.

So, What Am I Doing About It?

1. Broad Exposure: IWM (the iShares Russell 2000 ETF): it’s simple, liquid, and gives you a big basket of small caps. If you want a cleaner version with better quality filters, IJR is worth a look too.

2. Smarter Tilts: For something more tactical, I’m eyeing OMFS (multifactor tilt) and SMDV (dividend growers). These give you exposure to stronger balance sheets without losing the small-cap upside.

3. A Little Heat: I like long-dated call options on IWM—cheap leverage if this really turns into a trend. Risk-defined, but nice upside.

4. Diamonds in the Rough: Keep an eye on the top Russell 2k ETF holdings to look for outperformers

What Could Go Wrong?

Look, this isn’t a guaranteed win.

• If inflation ticks back up, rate cuts could get delayed.

• If we slip into a real recession, small caps will get hit harder than large caps.

• And if earnings disappoint again, money will keep hiding in Big Tech.

But from where I sit, this feels like the moment before the moment.

I wanted to put this on your radar before it becomes the hot topic on CNBC.

Because let’s be honest—we’re not here to follow. We’re here to move shrewdly, a few steps ahead.

Quick Hits Before I Go:

📈 Chart Watch: Russell 2000 is now above its 200-day. That’s a legit breakout.

⚡ Signal Flash: Golden cross likely within days. That’s your confirmation.

🎯 Fast Play: Long IWM calls if you want some torque.

Anyway, just thought this was too important not to share. Let’s keep our eyes on it—this could be one of those "remember when" trades.

Talk soon.

P.S. Watch IJR if you want cleaner small-cap exposure. Better earnings filter, same upside.

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The content provided in this newsletter is for informational purposes only and should not be considered as specific advice for any specific individual. The information is prepared by knowledgeable individuals and is not written by certified tax professionals or investment advisors. For personalized advice tailored to your unique financial situation, consult with a qualified tax professional, financial advisor, or attorney.

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