Bazooka Thrust Signal Will Send Small Caps Epically Higher By Lucas Downey, Contributing Editor, TradeSmith Daily Only a madman would’ve told you last summer, in the depths of a painful correction, that small caps could go on to rip 40%. A madman… or someone with access to evidence-rich data. In July, we showed you that an ultra-rare bullish signal fired for the neglected small-cap sector. In short, the Russell 2000 exploded 3.5% higher on July 16. History proved that a surge of that magnitude tends to be followed by breathtaking gains. Today, not only will we see where things stand since that call… We’re going to double down with an even bigger call. Because on November 6, the day after the presidential election, the Russell 2000 shot higher in bazooka-like fashion… catapulting 5.84%! If you think it’s time to jump off the small-cap horse, think again! Small-cap stocks are set to stun even the most evangelical bulls. If history is any guide, we could be looking at earth-shattering gains just around the corner. Let’s review the proof! Small Caps Rally Hard Post Trump Victory Many were shocked at the overall election tally. And surprises like that can send equities into overdrive. Once Wall Street digested the winner, it plowed into stocks. None saw a bigger move than the Russell 2000 small-cap benchmark… which surged a breathtaking 5.84%: 
Before we try and learn what that means for stocks going forward, let’s revisit a similar leap from July. The 3.5% thrust in the Russell 2000 forecasted a potential 40% gain for the group 24 months later. Below is a snapshot of the signal study from then, where the average six-month return post this violent up-move is 12.2%. We’re only near the four-month mark, and the Russell 2000 has jumped just under 8%… I’d say that’s right in line with expectations: 
Normally I’d do my victory lap and call it a day. However, I now think the forecasted gains above are modest compared to what’s coming. The post-election small-cap surge changed everything… and now makes that summer study child’s play. Stay with me… Bazooka Thrust Russell 2000 Signal Will Send Small Caps Immensely Higher Momentum is described by the Merriam-Webster dictionary as strength or force gained by motion or a series of events. It’s easy to spot momentum shifts in sports. Seemingly out of nowhere, a down-and-out team has a change of fortune. It’s fun to watch! But it turns out that momentum in markets works the same way. Big momentum shifts in the market actually kick off some of the most crowd-stunning rallies you’ll ever witness. To prove this, I went back and studied the 5.84% Russell 2000 jump post the election. I culled all 5%-plus daily session returns for the benchmark back to 1979. You’ll want to hug a bear after this! Whenever the Russell 2000 gains 5% or more in a session, here’s the forward performance: - Six months later, the benchmark jumps 16.2%
- 12 months later, it ramps 40.8%
- 24 months later, you’re looking at a 57.6% average gain
And to make this study more interesting, I’ve updated the prior 3.5%-plus-gain study and included it alongside this study. Let’s not mince words. Small caps are going a lot higher: 
We’ve been front and center about owning small caps all year. We got you prepared for one of the greatest equalizer events I’ve ever witnessed. As far as I’m concerned, we’re witnessing a monumental opportunity in so many under-followed stocks. Just recently one under-the-radar tech name exploded over 30% after earnings. It happens to be one of many stocks inside the Quantum Edge Pro portfolio that are taking off. As I said back in July, “We’re looking at one of the best small-cap setups in years.” Don’t make the mistake of sitting this one out. There’s a monster opportunity ahead. Let TradeSmith help you take advantage of it. Regards, Lucas Downey
Contributing Editor, TradeSmith Daily | 
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