The rotation into small-caps keeps gaining traction — exactly what you’d expect at this stage of the cycle.
Rotation, rotation, rotation… This is the lifeblood of every bull market.
And, right now, it’s pulsing stronger than ever. The strength and persistence we’re seeing across small-caps is genuinely impressive.
Small-Caps Break Out vs Large-Caps
Here’s a look at the small-cap iShares Russell 2000 ETF (IWM) relative to the large-cap Russell 1000 ETF (IWB):

I don’t see any evidence this move is over. In fact, it looks like the rotation is just getting started.
For context, the Russell 3000 represents about 98% of all investable U.S. equities.
The Russell 2000 makes up the smallest 2,000 stocks in that universe, with the largest 1,000 represented in the Russell 1000.
Small-Cap Tech Leading
Just like in large-caps, leadership from Technology is exactly what you want to see during a healthy bull market.
There’s nothing bearish about Tech strength — quite the opposite.
Here’s the Invesco S&P SmallCap Information Technology ETF (PSCT) attempting to complete a massive multi-year base:

As the saying goes, “The bigger the base, the higher in space.”
And that’s precisely what we’re looking at — a long, powerful foundation setting up for a potential breakout to the upside.
Space Stocks
Speaking of “higher in space,” you’ll find plenty of small-cap names orbiting in the ARK universe — especially in Space Exploration.
Here’s the ARK Space Exploration & Innovation ETF (ARKX) breaking out to new all-time highs this month after completing its base earlier this summer:

Meanwhile, short interest across the ARK universe has never been higher.
In other words, a record number of investors are betting against the very stocks we’re buying.
Perfect.
Opportunities are showing up everywhere — in large-, mid-, and small-caps.
But remember, small-caps move to their own rhythm.
They’re less correlated with the rest of the market, which makes them especially valuable during strong rotation periods like this one.
So we updated the rules.
At TrendLabs, our small-cap universe is defined as companies between $1 billion and $10 billion in market cap, not the outdated $300 million-to-$2 billion range everybody else still clings to.
That old game doesn’t fit today’s market. So we changed the rules.
Someone had to — and we’re glad it was us.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs