Small Cap Strength

At midday, the market has reversed huge losses and is actually positive. If it can finish up, this would be a big victory for the bulls. I continue to believe we were so oversold that we could get a real rally that could last a few weeks. 

One thing that stands out to me over the past 3 days has been the strength in the small caps.  When we covered some of our shorts the other day, the area we locked in gains was our small cap shorts.  It makes sense that they are rallying the most for two reasons.  First, they have been beaten down the most so people like me that are short small caps want to lock in gains.  Secondly, if credit will eventually get easier for companies, small caps may benefit the most.  After all, they had a huge run in the early 2000s due to easy money.  Lately, there’s been a credit crunch making getting credit difficult.  That doesn’t matter for a company like General Electric.  But, for smaller companies that don’t have deep pockets, their lifeblood is credit.

The volatility continues.

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