Small Cap Stocks See Big Selling

Today we’ll look at the groups that got hit the most last week. While major indexes like the S&P 500, DJIA, and NASDAQ are at or near all-time highs, smaller stocks aren’t keeping up.

I love to look at data. That helps me visualize what’s really going on with stocks. And a great way to see that is by looking at the MAPsignals Big Money Index. It tracks unusual trading in stocks, mapping Big Money buys and sells.

If the index is lifting, stocks are getting bought. If it’s falling, like now, that means more stocks are getting sold. So while the S&P 500 makes new highs, look how there’s destruction under the surface:

Chart, histogramDescription automatically generated

The BMI is being pulled down by small-caps. To show you what I mean, have a look at last week’s buy and sell activity broken down by market cap. As you can see, much of the selling was in companies with market caps between $500mm – $5B:

Chart, waterfall chart

Description automatically generated

And off to the right you can see how there was more red than green by a large margin (559 sells vs 172 buys). But let’s dive deeper.

This is last week’s buying and selling data mapped by sector. Shaded in yellow off to the right is what’s important. If a sector saw more than 25% of its universe get bought or sold, it’s flagged.

Have a look at August 16th – 20th’s data:

TableDescription automatically generated with medium confidence

You can see how big selling was seen in Technology, Communications, Industrials, Healthcare, Materials, Staples, Discretionary, and Energy. And on the flipside, you can see that Utilities saw buy activity.

So, you may be asking yourself what’s next for stocks? Well, I believe there’s value in certain small-cap areas.

Generally speaking, when stocks get sold this hard (like last week) it can signal a strong reversion for stocks. That just means that stocks can get oversold on a short-term basis.

Here’s the bottom line:

Major indexes power higher as small-caps face lots of selling. From a top-down view, I believe there’s value out there in high-quality equities.

If small-caps can stage a sustained rally or bottom, much of the selling will dissipate. And with August nearly in the rear-view mirror, that’s something investors should smile about.

For long-term investors, look for buying opportunities in the weeks ahead.

Disclosure: the author holds no position in SPY, QQQ, DIA, or IWM at the time of publication.

Learn more about the MAPsignals process here: