Thesis
Small caps have materially lagged the broader market for two years while capital crowded into mega caps and AI leaders. That phase is now ending. The macro backdrop is shifting, and the price structure across the higher timeframes shows the early development of a new expansion cycle.
Macro Backdrop
Rate cuts are expected as inflation cools and growth stabilizes. Small caps benefit more than any other equity class when financing costs fall because they carry higher leverage and have shorter debt cycles. Lower rates directly lift margins and earnings outlooks.
Foreign investment flows into the United States remain strong. Over the past year most of that flow was absorbed by a handful of large names. When that segment becomes extended, capital naturally rotates down the market cap ladder. This is the exact setup taking place now.
Earnings across smaller companies have quietly turned higher. Revenue revisions have stabilized, and cost pressure is easing. With rate relief approaching, profitability spreads improve faster in small caps than in large caps. Historically this combination of improving fundamentals plus easing financial conditions has led to multi-quarter outperformance.
Technical Structure
The weekly chart shows price breaking above the entire cluster of prior compression bands with multiple strong candles closing above them. That type of reclaim typically marks the beginning of a new trend phase rather than a temporary bounce.
On the same chart, the volume footprint is rising and shows persistent accumulation since the 2024 low. The upward sloping volume trendline confirms steady demand through every pullback.
The multi-wave momentum structure on the weekly chart has flipped from contraction into expansion. This shift generally occurs in the early stage of broader moves that last several months.
On the 3-day chart, price is firmly holding above its prior consolidation zone. Each corrective dip has been absorbed at higher levels, showing strong underlying demand. The volume trend on this timeframe also remains upwards, matching the weekly structure and confirming healthy participation.
Momentum on the 3-day chart mirrors the weekly: prior downside pressure has faded, and the bars are now expanding upward. That is the same setup seen before longer upside cycles in past rotations.
The daily chart provides the clearest confirmation. Price reclaimed multiple stacked levels in one impulsive leg, along with one of the strongest volume days in over a year. Pullbacks have been shallow and immediately bought. There are no signs of distribution.
Overall Structure
Large caps have already completed their expansion wave. Small caps have not. With rate cuts approaching, foreign capital still flowing in, and earnings momentum turning positive, the fundamental and macro drivers now favor small caps.
The multi-timeframe price structure aligns with that backdrop:
Reclaims across all higher timeframes
Expanding momentum after long contraction
Persistent accumulation on volume
No distribution signals on the daily
This is exactly the type of setup that precedes multi-month rotation into smaller names. Small caps remain the last unfinished leg of this cycle, and conditions are in place for that rotation to continue.
Bearish risk remains in a lower high and OBV failing its underside retest
Small caps have materially lagged the broader market for two years while capital crowded into mega caps and AI leaders. That phase is now ending. The macro backdrop is shifting, and the price structure across the higher timeframes shows the early development of a new expansion cycle.
Macro Backdrop
Rate cuts are expected as inflation cools and growth stabilizes. Small caps benefit more than any other equity class when financing costs fall because they carry higher leverage and have shorter debt cycles. Lower rates directly lift margins and earnings outlooks.
Foreign investment flows into the United States remain strong. Over the past year most of that flow was absorbed by a handful of large names. When that segment becomes extended, capital naturally rotates down the market cap ladder. This is the exact setup taking place now.
Earnings across smaller companies have quietly turned higher. Revenue revisions have stabilized, and cost pressure is easing. With rate relief approaching, profitability spreads improve faster in small caps than in large caps. Historically this combination of improving fundamentals plus easing financial conditions has led to multi-quarter outperformance.
Technical Structure
The weekly chart shows price breaking above the entire cluster of prior compression bands with multiple strong candles closing above them. That type of reclaim typically marks the beginning of a new trend phase rather than a temporary bounce.
On the same chart, the volume footprint is rising and shows persistent accumulation since the 2024 low. The upward sloping volume trendline confirms steady demand through every pullback.
The multi-wave momentum structure on the weekly chart has flipped from contraction into expansion. This shift generally occurs in the early stage of broader moves that last several months.
On the 3-day chart, price is firmly holding above its prior consolidation zone. Each corrective dip has been absorbed at higher levels, showing strong underlying demand. The volume trend on this timeframe also remains upwards, matching the weekly structure and confirming healthy participation.
Momentum on the 3-day chart mirrors the weekly: prior downside pressure has faded, and the bars are now expanding upward. That is the same setup seen before longer upside cycles in past rotations.
The daily chart provides the clearest confirmation. Price reclaimed multiple stacked levels in one impulsive leg, along with one of the strongest volume days in over a year. Pullbacks have been shallow and immediately bought. There are no signs of distribution.
Overall Structure
Large caps have already completed their expansion wave. Small caps have not. With rate cuts approaching, foreign capital still flowing in, and earnings momentum turning positive, the fundamental and macro drivers now favor small caps.
The multi-timeframe price structure aligns with that backdrop:
Reclaims across all higher timeframes
Expanding momentum after long contraction
Persistent accumulation on volume
No distribution signals on the daily
This is exactly the type of setup that precedes multi-month rotation into smaller names. Small caps remain the last unfinished leg of this cycle, and conditions are in place for that rotation to continue.
Bearish risk remains in a lower high and OBV failing its underside retest
כתב ויתור
המידע והפרסומים אינם מיועדים להיות, ואינם מהווים, ייעוץ או המלצה פיננסית, השקעתית, מסחרית או מכל סוג אחר המסופקת או מאושרת על ידי TradingView. קרא עוד ב־תנאי השימוש.
כתב ויתור
המידע והפרסומים אינם מיועדים להיות, ואינם מהווים, ייעוץ או המלצה פיננסית, השקעתית, מסחרית או מכל סוג אחר המסופקת או מאושרת על ידי TradingView. קרא עוד ב־תנאי השימוש.