Small Cap Leveraged ETFs Battleground

| February 25, 2015

financial chartsThe battle between the bears and bulls over small cap stocks is heating up.  Aggressive traders can use a small cap leveraged ETF to pick a side and profit.

The S&P Small Cap 600 is up more than 2% this year.  Is this just the beginning of a new rally for small cap stocks or are they destined to move lower from here?

Strong Small Cap Stock Performance

Here’s what the bulls are saying about small cap leveraged ETFs…

According to Bloomberg, small cap stocks are projected to outperform large cap stock by 6% this year.

One thing that’s helping lift investor sentiment toward small cap stocks is they have less exposure to the US Dollar.

The majority of small cap stocks make their money in the US.  So they don’t have to worry about a strong dollar hurting their profits earned in foreign currencies.

And don’t forget, the US economy is head and shoulders above other developed economies in Europe and Asia that are still struggling to reignite economic growth.

What’s more, interest rates are low and capital is easy to get.  That makes it inexpensive for small caps to fund growth.

That’s an explosive combination for small cap stocks.

Here’s what the bears are saying about small cap leveraged ETFs…

Small cap stocks have underperformed large cap stocks for a reason in recent years.

First off, small cap stocks are expensive relative to where they have been in the past.  They simply aren’t generating enough in profits or earnings growth to support higher prices.

Additionally, the Fed’s QE program and low interest rates have kept market volatility low during the last few years.  As these programs end and interest rates begin to rise, we should see an uptick in market volatility.

Volatility tends to be bad for risk assets like small cap stocks.  So the uptick in volatility could lead to a dramatic selloff in small cap stocks.

If you think the bulls are right, take a look at buying the ProShares Ultra SMALLCAP600 ETF (SPP).  This ETF seeks daily investment results that are twice (200%) the daily performance of the S&P SmallCap 600 Index.

If you think the bears are right, take a look at buying the ProShares UltraShort SMALLCAP600 ETF (SDD).   This ETF seeks daily investment results that are twice (200%) the inverse (opposite) of the daily performance of the S&P SmallCap 600 Index.

Good Investing,

Corey Williams

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Category: Leveraged ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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