On the surface, Thursday seemed like any other session when profit-taking strikes. The S&P 500 and Nasdaq took well-deserved breathers, declining 0.61% and 1.09%, respectively. But if you look closer, you’ll see an important theme. While leaders lagged, laggards led. Instead of indiscriminate selling taking everything lower, we saw rotation out of large-caps and into small-cap stocks.
This is a bullish omen signaling a broadening of the market recovery. Small-cap stocks have long underperformed. They were hit hardest during March’s massacre, ultimately falling 44%. And, they’ve been the slowest to rise. But not this week! Wall Street’s go-to fund for tracking the little guys, the iShares Russell 2000 ETF (NYSEARCA:IWM), is up 7.3% so far on the week. By comparison, the S&P 500 is only up 3%. That’s a substantial discrepancy.
While some small-caps have yet to crawl out of the dumpster, others are finally breaching resistance and turning their daily trends higher. Here are three of my favorite.
Let’s take a closer look at the price levels to watch and how to trade these small-cap stocks moving forward.
Small-Cap Stocks to Trade: Bed Bath and Beyond (BBBY)
Brick and mortar retailers have been under siege from Amazon (NASDAQ:AMZN) for years now. Bed Bath and Beyond is a shell of its former self, and the wholesale destruction of its once lofty share price has been hard to watch. The global pandemic only accelerated the downward spiral, ultimately driving BBBY stock to $3.43 before sellers were sated.
Since then, however, we’ve seen a constructive bottoming formation put in. And, it’s compelling enough to warrant bullish trade ideas. The price action has taken on the form of both a cup-and-handle and an ascending triangle. Volume patterns have weighed in favor of buyers for the past month. Thursday’s 14% moonshot saw over 20 million shares traded, suggesting big buyers were wading in. BBBY stock has now double off the lows and looks primed to take out overhead resistance at $7.
If it does, a run to $10 could be in the cards. In case the breakout bid fails, I’d stop out on a push below support at $5.78.
Tilray (TLRY)
Pot stocks littered the leaderboard yesterday. Aurora Cannabis (NYSE:ACB) and Cronos Group (NASDAQ:CRON) joined Tilray as the market’s biggest gainers. But it’s TLRY stock that looks the most attractive. ACB has run too far, and I find the daily 30% moves to be a little too insane for my taste. Meanwhile, Cronos stock is fast approaching multiple resistance zones, so it lacks a low-risk path to profits.
But Tilray? It looks good for a trade. Thursday’s 20% ramp ushered it to the doorstep of an upside breakout over $10. The last two attempts to breach this level were rejected, but I think this time we’ll succeed. The market seems to be favoring small-cap stocks right now, and I like the monster volume accompanying the rally.
The chart shows clean air from $10 to $15. There aren’t any prior pivots or congestion zones to get in the way of further gains.
Buy TLRY stock over Thursday’s high and place your stop below the 20-day moving average ($7.85). Use $15 as your target.
SeaWorld (SEAS)
SeaWorld Entertainment saw its share price utterly destroyed this year for all the reasons you would expect during a pandemic that kept parks shuttered. From peak-to-trough, SEAS stock declined 82%. It honestly looked like it was going to zero. But cooler heads have prevailed over the past two months, and bottom fishers have begun casting lines. The last earnings report was abysmal, but buyers are looking past the large loss to a brighter future where economies reopen, and consumers start taking their kids to hang with Shamu again.
On the charting front, SEAS boasts a large ascending triangle pattern that is breaking out this week. Given the speed of March’s descent, there isn’t any resistance until $21 and then $23. Those are the first two upside targets. A push below the 20-day moving average near $14.40 would invalidate the breakout in SEAS stock, so consider putting your stop loss there.
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