The Russell-2000 small-cap index has taken a dive in the last week after failing to reach major resistance at the 2015 high. Growing risk aversion is contributing to the decline, intensified by relative weakness compared to the S&P 500, which posted an all-time high during the summer rally. Adverse seasonality is also having a bearish impact, with more than three months until the January Effect once again favors this market segment

Even so, a handful of small caps have risen to multi-decade and all-time highs, driven by bullish growth stories that have generated broad speculative interest. Most of these companies aren’t followed by big Wall Street firms, flying under the radar in stealth rallies that discourage the predatory selling pressure that’s become familiar in our modern electronic environment. This positive characteristic alone should demand our undivided attention

STS

Supreme Industries Inc. (STS) makes parts for trucks and other vehicles. This is an old rust belt company that topped out at 8.99 in 2014 and fell into a broad trading range with support near 5.00. It undercut that level in January 2016 and turned sharply higher, lifting to range resistance in March, ahead of a breakout and uptrend that reached the 1998 high at 13.09 in May.

The stock consolidated at that level for nearly three months and broke out to an all-time high on July 22. The uptick stalled within two sessions, yielding a rounded sideways pattern that’s still in play as we near the second half of September. Price is now testing range resistance while On Balance Volume (OBV) continues to post new highs, predicting a rapid advance into the low-20s.

HDSN

Hudson Technologies Inc. (HDSN) provides refrigerant management and chemical reclamation services from its New York headquarters. The stock bounced to 4.05 in 2005 after a 10-year downtrend dumped price from 27.50 to 51-cents. That level acted as resistance for another decade, with three breakout attempt failing to yield a sizable uptrend. The fourth attempt in July of this year did the trick, generating a breakaway gap and quick rally to a 19-year high at 6.60.

The uptick has carved two stair steps, with a breakout above 5.63 in August and a short-term top just one week later. The stock has been pulling back for the last two weeks and has now landed on top of the short-term support. 5.50 should mark the lowest low, ahead of a recovery wave that tests the rally high. Keep a stop loss below that level because a breakdown will expose a trip to the top of the multi-year basing pattern below 4.50.

XTLY

Cloud-based software provider Xactly Corp. (XTLY) came public at 8.00 in June 2015 and entered a broad trading range bounded by support at 6 and resistance at 10. An October breakout attempt failed, yielding steady selling pressure that broke the range in February, dropping the stock to an all-time low at 4.68. The subsequent recovery wave lifted back to the range top in June, ahead of a powerful breakout that’s yielded a 50% rally in just three months.

The stock eased into a rising channel in June and is holding that price structure as we near the fourth quarter. It’s been pulling back for the last two weeks and is getting close to channel support, now located near 13. Buying the stock at that level could work as a position trade while a channel break and decline that tests new support near ten would offer a lower-risk buying opportunity.  

The Bottom Line

The broad market is pulling back after failing to follow through on the early summer rally and putting pressure on the small cap universe, but a handful of sector plays are swimming against the tide, posting new highs due to strong speculative interest.  

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