You'll Never Guess Which Stocks Are Storming Back to Life...

The market’s schizophrenic– and investors have no idea what they’re supposed to do.

We’ve already tossed the popular tech IPOs down the pit this summer. Then, speculators knocked the almighty biotechs back to earth. One sector after another has taken a bath….

But there’s one group of stocks zooming back to life right now. It was among the hardest-hit during the August downturn. But now, it’s flashing signals that better days lay ahead for the market.

Even better— you can grab a basket of these rebounding stocks today for a great shot at quick, double-digit gains.

So who are these comeback kids? Small-caps.

Surprised? I don’t blame you…

In early August, I warned you that small-cap stocks were beginning to fall apart. Yes, we were impressed when small-cap stocks finally started to outperform their bigger cousins earlier this year. That’s because it’s bullish when smaller, more speculative names outperform the blue chips. That means investors are more willing to lay down their hard-earned dough on riskier bets.

But small stocks had been steadily losing momentum since June, and retreating at a faster rate than the bigger boys…

“While the S&P has dropped 9% since late June, the Russell 2000 is down more than 13%,” I said just before the August swoon.

But this week is looking completely different. After slogging through the muck for weeks, small-caps are cleaning up their act.

Time to Play Catch-Up

As of yesterday’s close, the Russell 2000 small-cap index is still trailing the S&P 500’s comeback this month. However, these small stocks are closing the gap fast. Yesterday was huge for the Russell. While the big stocks jumped a little more than 1%, the Russell 2000 jetted higher by nearly 3%.

Right now, the Russell is a little less than 2% behind the S&P in October. Not bad for a group of stocks that was dropping much faster than the major averages just a couple of months ago…

If we zoom in on the Russell, you can see how the index is attempting to bottom out and blast higher:

Russell 2000 Small-Cap Index

Yeah, that 16% tank from late June to September wasn’t exactly constructive. But the lows were quickly bought. And after a couple weeks of consolidation, yesterday’s mega-bounce is exactly what the Russell needed to kick off a new rally.

It’s time to bet on small-caps again…

Sincerely,

Greg Guenthner
for The Daily Reckoning

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