Small Cap THEME

2261.63 -76.78 (-3.39%) Sell

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SMALLCAP THEME is a falling knife, continues to bleed every investor trying to catch it

14 min read

~SMALLCAP is a falling knife that can bleed you if you catch it today. On a longer term basis, investors in Small Cap made +0.13% per day. Friday's performance of -3.39% was a significant underperformance compared to it's daily average.

[Theme constituents]

~SMALLCAP showed a strong down trend over the last 3 months. During this period ~SMALLCAP lost -19.7% and saw a maximum drawdown of -20.31%. There was a short signal during this period which returned +17.92%.


~SMALLCAP has been underperforming the SP500 index in recent time, after having outperformed till 4 Sep, 2018. Over the last 2 years and 7 months, ~SMALLCAP outperformed the SP500 index on 59% days.

~SMALLCAP returned losses on 62% days in the last three months. During this time, it delivered on average -0.33% per day. It delivered it's worst daily return of -4.29%, during this period, on Wednesday, 10 Oct, 2018. There was initially a bearish trend during this period which started on 4 Oct, 2018 and went on till 11 Oct, 2018. The trend delivered -8.86% losses to investors. This was followed by a bullish trend that started on 30 Oct, 2018 and ended on 1 Nov, 2018. This bullish trend delivered +7.98% to investors.

~SMALLCAP had 8 profitable and 4 loss making months over the last year. During the last year, number of profitable months of ~SMALLCAP and SP500 index were the same. ~SMALLCAP was also a more risky investment than SP500 index as it's worst month in the last year, Oct 2018, returned -10.66% compared to -7.28% returned by SP500 index in Oct 2018. ~SMALLCAP had a longer winning streak of profitable months than SP500 index. It went up in 8 straight months (from Jan 2018 to Aug 2018) during which period it delivered +37.69%. It is interesting to note that both ~SMALLCAP and SP500 index significantly outperform during months when quarterly/annual results are announced.

The stock market is a discounter of all known information.
-- Kenneth Fisher

~SMALLCAP is becoming more volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in ~SMALLCAP's volatility from 10 Sep, 2018 to 1 Nov, 2018. While there was a significant surge in the SP500 index's volatility from 10 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that ~SMALLCAP has significant positive skewness in it's return distribution. This indicates that investors can expect ~SMALLCAP to recover from drawdowns quickly. Which makes ~SMALLCAP a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.

~SMALLCAP has more chance of extreme outcomes than the SP500 index. Therefore, ~SMALLCAP must receive a lower allocation than SP500 in your portfolio. SP500 index usually has shorter drawdown period than ~SMALLCAP.

On a general note (since you are interested in ~SMALLCAP), if you are evaluating ~SMALLCAP as an investment candidate, then you should read about ~HIGHMOMENTUM which has delivered similar performance and can help diversify your portfolio.

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