Investors Show Willingness to Take Risks

Market Moves

Markets gapped higher and stayed in a tight range to close out Monday's session. However, small- and micro-cap stocks led the way higher and closed above their respective trendlines. This could signal that investors are much more willing to take on risks than they have been in the past several months. During the month of October, the iShares Russell 2000 ETF (IWM) for small-cap stocks and the iShares Microcap ETF (IWC) for micro-cap stocks outpaced the large-cap indexes for the first time all year.

Perhaps because the major U.S. stock market indexes extended their streak of calm trading days, investors are anxious to seek out gains. In what is now the seventeenth straight trading day, the S&P 500 (SPX), the Nasdaq 100 (NDX), and the Dow Jones Industrial Average (DJX) all exhibited a downtrend in their average true range. This is often a bullish signal, but it also describes markets that are not rising as fast as they had been in previous weeks and months. When such action takes place, investors become impatient and seek out greater opportunities for growth. 

Chart showing the performance of major stock indexes, with small caps and micro caps outperforming

Douglas Dynamics Plows Higher

Douglas Dynamics, Inc. (PLOW), a maker of truck parts and snow-plow equipment, is the best performing micro-cap stock in the top 10 holdings of the iShares Microcap ETF. The stock price is up nearly 40% in 2019. The company continues to outperform expectations, and dividend payments provide a yield of 2% per year. The company will report its earnings tomorrow (Tuesday) about 30 minutes after the market opens.

Chart showing the share price performance of Douglas Dynamics, Inc. (PLOW)

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Odd Lot Trading on the Rise

Microsoft Moving Up in the Cloud

Microsoft Corporation's (MSFT) cloud-services offerings have finally begun to come into their own, and investors have noticed. Shares of Microsoft have held above the resistance level they broke through after the company announced that it had won a multi-billion-dollar government contract for cloud services.

Today's price action reinforced the notion that institutional sellers want to take profit, as the stock sold off mildly from the beginning of today's session to the end. The real question is whether or not the current cluster of prices above old resistance levels will be followed by a drop in prices back into the old trading range. Such price action would be a bearish signal.

Chart showing the share price performance of Microsoft Corporation (MSFT)

The Bottom Line

Stocks closed higher again today despite holding a tight trading range. Small-cap and micro-cap stocks seem to be outpacing larger-cap stocks in the final quarter of the year. Among such stocks, Douglas Dynamics is a standout. Microsoft also has interesting trading dynamics, but if the stock price drops sharply, it could be a bearish signal not only for Microsoft shares but for the larger market as well.

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