If I had a nickel for every person that told me they were “Waiting for a pullback” or has most of their money “on the sidelines” I’d be living in the Caribbean eating jerk chicken and constantly applying sunscreen to this bald head of mine. Honestly, I don’t blame people for their fear or their skepticism surrounding this market. After all, it really doesn’t make much sense right? You can turn on the T.V. at any time of the day and find 1,000 reasons why the world is going to heck in a hand-basket and you should stock your basement with Spam, drinking water, ammunition and never leave the house.
While we’re all shivering, cowering in the corner, white knuckles tight around the 12 gauge, it’s sunny outside. There’s no post-apocalyptic zombie horror movie playing in our front yards. There aren’t any breadlines in Manhattan, and despite the best efforts of our politicians not every municipality is bankrupt.
In actuality it’s nearly the complete opposite. The stock market is at all-time highs. Interest rates will remain accommodative for the foreseeable future. U.S. GDP is picking up pace again. Earnings are looking great. Basically, it’s a good time to be in the market. So take a deep breath, a glass of water, rub your earlobes, have a “woo-sah” moment, grab your check book and buy the all-time high!
Insanity right?! I’ve lost all my marbles. Somebody put this guy in a strait jacket. Or, I’ve got an even better idea. Take a look at the Russell 2000 chart.
The Russell 2000 (R2K for short) represents the small caps in the stock market. Small caps historically are more volatile than large cap stocks. If you want to sound fancy you say they are “high beta.” They have a tendency to exacerbate moves in the S&P 500 to either side. But, while the S&P 500 is hitting new all-time highs like every other week, the R2K has been locked into a trading range forever.
The range between 1082 and 1212 has been a firm floor and ceiling for the index since last November. Since then we’ve done all sorts of wiggling and jiggling between the two levels. Efforts to breakout above or below have been convincingly thwarted.
Currently we’re trading at about 1160 on the R2K, just a shade above the halfway mark between the buoys. The last time buyers came in to support the index was August 1st when traders came and scooped up shares of small caps well ahead of the bottom of the range at 1082. Most of the buying happened above 1107, which is about 25% or so from the bottom of the range. From a technical aspect, this implies a more bullish pattern developing for the R2K, but also there’s a chance this rally dies out in the 1180s as the range becomes more compacted ahead of a breakout. Any way you slice it, I’m bullish small caps with the S&P 500 at all-time highs. I have a few names you should be looking at, even with the market as high as it is.
TriQuint Semiconductor (TQNT)
TriQuint designs, develops, manufactures, and markets a broad range of high performance analog and mixed signal integrated circuits for communications markets. The integrated circuits are incorporated into a variety of communications products, including cellular phones, fiber optic telecom equipment, satellite communications systems, high performance data networking products and aerospace applications.
This Zacks Rank #1 (Strong Buy) has surprised earnings estimates to the upside for four quarters in a row. Further, over the last 30 days, three analysts have raised their estimates for the current year and next year. This has pushed consensus up from 31 cents per share for the current year to 51 cents and bounced next year’s consensus up from 50 cents to 75 cents.
All this has contributed to one heck of a run for the stock. After gaping up to break the $10 mark in February of last year, TQNT has barely paused to take a breath on its ride upwards. A few times the stock traded sideways to touch the 25 day moving average shifted by 5 days. After brief consolidation periods and minor sell-offs, TQNT almost always rebounds to head even higher.
Recently the stock has formed a bit of a bullish triangle pattern. Stochastics are in overbought condition so you do have to use a bit of caution when jumping on board. However, you can expect to see stochastics like this during a breakout and that’s exactly what’s happening to TQNT right now. With the spike to a 52-week high intraday today, I’d expect to see an attempt at $20 over the coming weeks.
Jabil Circuit (JBL)
Jabil Circuit is a worldwide independent provider of electronic manufacturing services. It designs and manufactures electronic circuit board assemblies and systems for major original equipment manufacturers in communications, computer peripherals, personal computer, automotive and consumer products industries.
Due to positive earnings revisions turning more than 60 days old, JBL has bumped down to a Zacks Rank #3 (Hold), however it’s in an industry that ranks 3rd or in the Top 1% of our Zacks Industry Rank.
The stock, just today, broke out above the previous 52-week high where it had a failed breakout attempt just a few short weeks ago. This momentum stems from an aggressive stop grabber pattern at the 23.6% retracement of the December 18th to June 24th broad move to new highs. This, coupled with a stochastic bullish crossover from an extreme oversold condition has been the technical catalyst.
With the old 52-week high firmly in the rearview mirror, you can expect a short run up until the stock inevitably retraces to retest the old high. If you miss the breakout happening now, you can wait for a bit of weakness to jump in and ride this thing higher.
Yes, we’re at all-time highs on the S&P 500 but that doesn’t mean that you should shy away from the stock market. Here I’ve given you reasons to step in, be courageous, and buy this market. These two stocks should benefit from a continued rally in the small cap Russell 2000 index.
Read the analyst report on IWM
JABIL CIRCUIT (JBL): Free Stock Analysis Report
TRIQUINT SEMICO (TQNT): Free Stock Analysis Report
Zacks Investment Research