Small Caps vs. Large Caps | Podcast Episode #191

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market.

0:34
I’ve got a good episode Sewed, for you guys today about the realities of large cap, stocks versus small cap stocks guy. By the name of stocks for attendees on Twitter, slid into my mentions and he says Ryan, you should do a podcast on the disconnect between small caps and the major indices every day.

0:51
We hear about new Highs but small and big caps have been going down five to thirty percent for a month. CNBC acts, like the whole Market needs a correction, only big caps. Do now a lot to unpack there, because The small Caps or the Russell 2000 Index.

1:08
It’s not sliding five to thirty percent a month. I think what he means there is, there’s a lot of stocks within the Russell 2000 that are seeing declines from, anywhere from 5% to 30%, in a single month. There’s no doubt about it. The large caps, particularly the tech stocks are way outperforming the small caps.

1:25
I mean, that’s just a matter of fact, there’s no denying it and when you drill down into it even further, it’s a handful of stocks that are really pushing this market up. To new highs on a daily basis. It seems. But first, before I get into that, what am I drinking?

1:42
Well, trying this new whiskey out. It’s a corn whiskey. It says, it doesn’t give me much information on it but it’s called Baby Blue. It’s made by a company called balconies, never had it before. Never tried it. It’s 46 percent alcohol. 92 proof. And like I said, it says it’s a corn whiskey made with blue corn.

1:58
I don’t even know what blue corn is. I’ve never even heard of that term before, not saying it’s not a thing. I’m just saying I never Heard of it to the nose. It’s got some vanilla smells to a little sweet, kind of a floral smell much better color than the the pissed like colors that was coming from Big Adams on my last podcast episode.

2:21
I’d like to throw it out there too. If you guys know of a good Canadian whiskey to try, let me know. I’ll see if I can’t find it down here in Florida but love to see if there’s a good Canadian whiskey out there. So shoot me an email if you know of one but The smells are okay I’m not a huge fan of those.

2:38
Floral smells the last one that had that was will it? And I thought the will even tasted floral which I thought was kind of on the disgusting side to be honest. The Taste is like a mild spice is very buttery. There was another one that was like that as well.

2:54
And I don’t recall, which one it was, but it’s very buttery on the lips. It even feels buttery. It’s got a little bit of, like a moonshine taste to it. I don’t, I don’t think it’s necessarily A sipper. It’s definitely not an everyday sipper. I would say this is a scale of 0 to 10.

3:10
I’m going to give it a 68. I don’t think it’s horrible. I just wouldn’t go out of my way to get it. I mean, somebody serves it to me, at a restaurant, I could do worse Now back to the influence of the Fang, stocks, the big caps, the versus the small caps.

3:25
What are we dealing with here? First of all, I don’t know if you’ve noticed it a lot lately but there’s a lot of – breath days. And when I talk about – breath days, those are the days where you have more declining stocks than advancing stocks. If you have more advancing, stocks and declining stocks that’s positive breath.

3:42
But when there’s more stocks going down, the wood are actually going up. That’s – breath I track it everyday. I think it’s really important to gauge how strong the market rally is. And a lot of times when you have that – breath, that’s telling you, that the market rally is not going to be that strong. One of the big influencers on breath is the small cast because there’s so many more small caps and mid-cap stocks than large cap.

4:05
Stocks large cap is like the cream of the crop. So when you’re seeing the S&P 500 in the NASDAQ Composite Riley like 1% or one and a half percent and then you’re looking at the breath in your life. How even up today when the majority of stocks are down.

4:20
I mean, I’ve seen it, you know, 2212 the downside. I seen it almost 3 to 1 to the downside. Yet, the S&P 500 in the NASDAQ Stills rallies and you’ll see like the Russell down one and a half percent. It’s a real crazy phenomenon and you look at it from a just one day here and one day there in your thinking, okay maybe this is just like a blip on the radar but then you take something like the T20 107 which is a chart that I use through TC 2000.

4:44
And that measures the percentage of stocks that are trading above their 200-day moving average. And right now it’s trading at 46 percent, that means with the S&P 500, in the NASDAQ trading just about at their all-time highs. There’s been about a four-day pullback on the S&P 500, but even still, we’re about one percent off of the all-time highs yet.

5:05
For 54% of stocks are trading below, their 200-day, moving average and in the short term, it’s even worse. You take something like the 40-day moving average. And you’ve got only 44% of stocks trading above their 40-day moving average.

5:22
That means 56% of stocks in the short term are trading below a short term moving average or maybe it’s like some people will call it like a mid term moving average but nonetheless. It’s a far shorter time frame than the 200. So on both the long term and then the shorter time frames, you have a greater number of stocks trading below their moving averages than above them and it was even worse.

5:44
Just like less than a month ago, we had a 2108 again, the percentage of stocks trading above their 40-day moving average, hovering like at twenty-eight twenty-nine percent. So the rally in the last couple weeks has actually helped that out quite a bit. Now, what are the biggest influencers on the stock market right now?

6:01
What is the biggest influencers on the S&P 500, and the biggest ones on the Russell, the biggest ones on the NASDAQ. Well, we have to break it down or at least splice it up between the NASDAQ and the The S&P 500 and the small caps.

6:16
So as I can S&P 500, you have Facebook, Amazon Apple Netflix, Google, Microsoft, Tesla, and Vidya. Now you have what they call the Fang, the FAA and G+, Microsoft, so you can call them Fang, Fang them. If you want to include Microsoft, you really should include Microsoft because they’re the second biggest company out there, so it makes sense to include them.

6:37
But they also people include Netflix because for a long time, they were one of the bigger ones, but now you have Nvidia, which I really think Netflix should even be in the Equation. You’re talking about Netflix, which is like a 200 billion plus market cap versus and video which is over 560 billion.

6:52
So that’s twice the size. I don’t know why, we just don’t swap out Netflix because Nvidia has a way bigger influence. Then Netflix does and that’s mainly because Netflix has been stagnant for the better part of a year. While Nvidia has just gone absolute eight, tripling and quadrupling but those stocks and we’re not going to include Nvidia in it for right now.

7:14
But those stocks we’re not going to include Nvidia and it right now those stocks Facebook, Apple, Amazon, Netflix, Google Microsoft comprised of nine point, seven trillion and market cap. If you throw in Tesla that’s going to be about 10.3 because 10.4 guys Tesla’s about a seven hundred billion dollar market cap.

7:34
So between seven stocks you got ten point four trillion dollars in market cap, take Tesla out of the equation. The Fang plus Microsoft represents about 25% of the entire S&P 500. That means if those six stocks go up about 2% on a given day in the other 475 go down.

7:55
Percent. I’m no mathematician, but I’m pretty sure that would make it where the S&P 500 would break even, that’s kind of crazy right. Again, double check my numbers. But when I was trying to do the math earlier today, it made sense to me, when I Was scribbling down the math on that, but that just shows you how big these stocks were.

8:16
Here’s something even more crazier for you guys. Apple at a two point, Six Trillion market cap has a bigger Market cat than all, but Ford country’s GDP. The only countries with a bigger GDP is Japan at 4.8, Germany 3.6 China at 12.2 and u.s. at 19.5.

8:37
Now we can take it a step further and Say that if you take all the fingers, stocks plus Tesla their combined market, caps, bigger than all, the gdps of the countries, except for United States and China. That’s shocking, right? Huge. Just mesmerizing.

8:53
And I know GDP is not the same thing as a market cap, but it just gives you a feel for the size and the monstrosity of these fangs, stocks. So when most of the stocks are going down, when a lot of your NASDAQ stocks are going down, And when a lot of your S&P 500 stocks are going down, but you’re still seeing them printing green.

9:13
It’s because you have Fang stocks and they become a safety play as well investors. Instead of going towards the traditional utilities, they still do to a certain degree utilities like nextera energy or your staple companies like Costco and Walmart, they’re going towards the Fang, stocks, the tech stocks never really happened before until this post covid Market that we’re in now.

9:36
Speaking of the Fang stocks you can head over to swingtradingthestockmarket.com, and you will get my weekly analysis, on all the things stocks plus Microsoft and Tesla on top of all of that, you’re going to get an update each week on the S&P 500 and NASDAQ. And the Russell 2000, plus my weekly watchlist to get your week, started off in the right direction and my list of trade setups but I’m watching each and every day.

10:00
Plus all the different charts that I find intriguing and worth sharing with you throughout the trading sessions. So does it concern me that we’re seeing that? Yes it does because it shows that this Market isn’t really a broad-based rally that that it’s experiencing right now.

10:16
It’s not a broad-based rally at all. I mean, yeah, you got a lot of tech stocks are trading at their all-time Highs, but by and large, most of your companies are not trading at all-time highs, we were talking about, what was the biggest companies in the S&P 500 and the NASDAQ.

10:34
Well, guess what? One of the biggest companies in the Russell 2000, AMC. And we know why AMC’s up because a bunch of Retail investors on Wall Street bets, got it pumped up. So the Russell isn’t going to always go up with the NASDAQ and S&P because they don’t have the influence of the Fang stocks.

10:52
They don’t have any of the things stocks in there because it’s only small caps and I don’t really see it. Getting any better throughout the year end. I mean Goldman Sachs did a analysis the other day. That was saying that there’s probably another like 5% worth of market gains based off of BuyBacks alone.

11:16
Apple still buying their their stock. Plus you have the Federal Reserve that’s buying their debt and the Federal Reserve isn’t doing anything to hamper this Market or to cause it to sell off their not going to taper anytime soon. They’re not going to or at least they’re not talking about tapering and there’s not thinking about thinking about raising interest rates.

11:35
What do we do is Traders? Because a lot of people are getting really nervous about adding any new traits that are portfolios. And to be honest, I’m not a huge fan of adding new long-term Investments to the portfolio at this point in time.

11:52
I think the market does need a big pullback before you can really consider new long-term Investments. However, from a swing trading standpoint or a day trading standpoint, you flip go with the flow and you go with the direction that the markets taking you right now, you still see sell-offs but you’re not seeing sell us of great depth.

12:08
And then when you do get them to Intraday basis. They’re usually recovering about half of those losses before the close and you need volume for a sell. If you need Panic for a legit sell-off to take, hold for there to be day after day after day of sell-offs instead, what you’re getting is very light volume.

12:27
Celos Microsoft is down six out of the last seven days. You would think a stock that’s sold off, six, out of the last seven days would be seeing a correction right now of five to seven percent, maybe even 10 percent but no, Microsoft isn’t even. Like two percent off of its all-time highs yet, as a be 500.

12:45
Like I said, earlier, down four, straight days, pretty much still right at their all-time highs. And the remedy a lot of people think is that, hey, maybe we should break them up, their monopolies. They’re too big now but not, it doesn’t work that way.

13:07
What would you do if you try to break up a ten point three trillion dollars worth of market cap? What would that do to the economy? It would destroy it when you’re that big and have that much influence. They can’t break you up. I mean you got to Amazon that’s literally trying to take over every business in America, not from a buyout standpoint.

13:26
They’re just trying to expand into every industry into every sector that there is and who’s going to stop them. And so, I don’t really see the value of these Fang, stocks relative to the rest of the, the S&P 500, or the NASDAQ or the Russell 2000 changing anytime soon. In fact it’s probably only going to get worse.

13:43
I would not be surprised to see Apple at three trillion before the end of the year. And what do you think it means for the entire Market? If these six stocks start to see a correction, what does it look like if apple and Amazon and Google and Microsoft pull back?

14:01
10% as through Facebook in there too? What happens? The 10% pullback. I would reckon that the entire Market is just going to be In complete disarray because their influence is so huge that they’re going to sell off, but they’re going to take a lot of stocks down with it as well.

14:18
What if you just had one stock, like apple have a Ali Baba, like sell-off Ali, Baba. If you remember. One of the biggest companies there was and then they had this fifty percent correction what if what if Apple had that or Amazon or a combination of them did? You’d be really, really bad.

14:37
So I’m not trying to trying to scare you guys. I’m trying to put in perspective, the influence that these stocks have on the overall mark. It is huge. It’s phenomenal. It’s like nothing we’ve ever seen before.

14:55
But we have seen in the past where you get a handful of companies, become the greater part of the overall stock market. And when that’s happened in the past, whether it was the.com era, Or whether it was in the 19 late, 1920s. It is ultimately led to corrections, but that correction may not come this year next year, or the year after it could continue for a long time.

15:24
That’s where they come up with the saying that the market can stay irrational a lot longer than you can. Stay solvent is because it can continue on this trajectory for a long, long time. So I think it’s important to be cautious as a swing Trader. I think you still have to trade with the direction of the market, until there is a legitimate break down that can be sustained.

15:43
Shorting is not going to. Do you very much good. The enjoy this podcast, please make sure to leave a review on Apple Amazon Spotify, Anchor It Whatever platforms allow you to leave a review please leave a review if nothing else please subscribe and make sure that you get notified each.

16:01
And every time that I do a new podcast, I try to do one or two of these every week, so make sure to keep your questions coming my way. ryan@shareplanner.com. Thank you guys, and God bless. Thanks for listening to my podcast. Swing trading the stock market, I like to encourage You to join me and the SharePlanner Trading Block, where I navigate the stock market.

16:21
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16:39
And follow me on SharePlanner’s, Twitter, Instagram, and Facebook, where I provide unique market and trading information every day. You have any Ins, please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to chatting with you soon.