{"id":4856,"date":"2017-01-11T06:09:38","date_gmt":"2017-01-11T11:09:38","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4856"},"modified":"2017-01-11T08:57:35","modified_gmt":"2017-01-11T13:57:35","slug":"small-mid-cap-stocks-2017","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/small-mid-cap-stocks-2017\/","title":{"rendered":"Why You Need To Buy Small-Cap & Mid-Cap Stocks In 2017"},"content":{"rendered":"

\"morpheus2017 is a special year for me because it marks the 15-year anniversary of Morpheus Trading Group, which I proudly founded with passion and dreams<\/a>\u00a0back in 2002.<\/p>\n

Back then, I didn’t really care about which stocks or sectors generated the best annual performance because I focused only on very short-term trends (typically 1 to 3 days holds).<\/p>\n

However, I eventually realized I could generate the same (or greater) profits by trading the same technical patterns over longer holding periods.<\/p>\n

Bonus Tip:<\/em> I also discovered that longer trading timeframes greatly reduced the inherent STRESS\u00a0of being a professional trader.<\/p>\n

Anyway, the current\u00a0focus of my nightly newsletter<\/a> is picking leading stocks\u00a0with high odds of generating\u00a020-30% gains over a period of several weeks to months.<\/strong><\/p>\n

Since large-cap stocks tend to move slowly, small and mid-cap growth stocks comprise a majority of the trades we make in most years.<\/p>\n

And thanks to exciting, bullish charts of the small and mid-cap indexes right now, the year 2017 could be even more awesome than usual.<\/em><\/p>\n

Whether you are a short-term trader or long-term investor, keep reading<\/em> to see why small and mid-cap stocks deserve a front-row seat in your portfolio.<\/p>\n

Small-Cap and Mid-Cap Charts: No Resistance, No Problem!<\/strong><\/h3>\n

Thanks to a powerful, news-driven rally\u00a0last November, the broad market\u00a0kicked off January of 2017 on a positive note.<\/p>\n

However, small and mid-cap stocks have clearly been setting the pace\u00a0and exhibiting the most relative strength of the major indices.<\/p>\n

Notably, both the small-cap Russell 2000 and S&P Midcap 400 indices have recently broken out to fresh, all-time highs.<\/strong><\/p>\n

Stocks and indexes trading at record highs tend to continue much higher, even with minimal demand<\/em>, due to a complete lack of overhead supply (resistance) from higher price levels.<\/p>\n

But the best breakouts to new highs also have lengthy bases of prior price consolidation (which subsequently becomes\u00a0new support after the breakout).<\/p>\n

So, did the small-cap and mid-cap index breakouts meet that qualification as well? Absolutely!<\/p>\n

Take a look at the\u00a0long-term monthly<\/em> chart of $IWM, a popular ETF proxy for the small-cap Russell 2000 Index<\/strong>:<\/p>\n

\"$IWM<\/p>\n

As shown on the chart above, $IWM recently rocketed to a new all-time high after finding major support at its rising 10-month moving average (similar to 200-day MA) last November.<\/p>\n

It’s a similar situation with $MDY, an ETF proxy that tracks the S&P Midcap 400 Index<\/strong>:<\/p>\n

\"$IWM<\/p>\n

S&P Midcap 400 failed a breakout attempt in July of 2016, but succeeded during its subsequent breakout attempt four months later.<\/p>\n

As with $IWM, the breakout occurred after the ETF came into key support of its 10-month moving average, and was confirmed by increasing volume on the breakout.<\/p>\n

Behemoth Base\u00a0= Beastly Breakout<\/strong><\/h3>\n

The longer the base of consolidation, the stronger the eventual breakout will be.<\/em><\/p>\n

This is a well-known “rule” of technical analysis that is quite reliable (except in bear markets).<\/p>\n

Accordingly, the most powerful index and stock breakouts are typically preceded<\/a> by solid, lengthy bases of consolidation.<\/p>\n

How do the recent breakouts in $IWM and $MDY measure up in that regard?<\/p>\n

If we include the sideways action in 2014 that stalled out with\u00a0very little upside in 2015,\u00a0then $IWM is breaking\u00a0out from a three-year <\/em>long base.<\/em>\u00a0<\/em><\/strong><\/p>\n

$MDY has a similar chart pattern, although\u00a0its base of consolidation is closer to two years (around twenty months).<\/p>\n

Since\u00a0these record high breakouts were preceded by both long bases of consolidation\u00a0AND pullbacks to major support of the 10-month moving averages,\u00a0small and mid-cap stocks may score an excellent performance in 2017!<\/strong><\/p>\n

Armed with such knowledge, it may be a great idea\u00a0to increase the small and mid-cap stock\u00a0allocation in any\u00a0traditional investment accounts (IRA, 401k, etc.) you manage.<\/p>\n

Although all signs point to prevailing small and mid-cap strength throughout 2017, please keep in mind that bullish chart patterns have a very low chance of success in bearish markets.<\/p>\n

Therefore, keep an eye on the overall health and sentiment of the broad market.<\/p>\n

This can be accomplished by simply monitoring the price action of leading stocks in the market.<\/p>\n

As long as we don’t start seeing a bunch of failed breakouts in the top growth stocks, it’s probably safe to say overall market sentiment is okay.<\/p>\n

If you don’t have the time or knowledge to do so, we can help<\/strong><\/a>.<\/p>\n

Join me in celebrating the 15-year birthday of Morpheus by\u00a0making 2017 your most profitable year of trading ever.<\/strong><\/p>\n

Deron | founder @ MorpheusTrading<\/a><\/p>\n