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Barnes &amp; Noble Education, Inc. announces a rights plan &amp; equity investment to strengthen balance sheet. Stock down 65.7% at $0.2400.

Why Barnes &amp; Noble Education Shares Are Diving Today

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Casa Systems initiates Chapter 11 sale process to maximize value of 5G and Cable businesses. Lumine Group and Vecima Networks agree to acquire certain businesses.

Why Casa Systems Shares Are Tumbling Today

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Many investors like the allure of small cap stocks. Buying the next Apple Inc. (NASDAQ: AAPL) or Amazon.com, Inc. (NASDAQ: AMZN) while they&#39;re still in their infancy is every investor’s dream.

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Barnes &amp; Noble Education, Inc.&nbsp;(NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BNED#NYSE">BNED</a>) shares are trading lower after it announced a short-term shareholder&nbsp;<a target="_blank" href="https://www.benzinga.com/pressreleases/24/04/b38270602/barnes-noble-education-announces-milestone-transactions-to-significantly-strengthen-balance-sheet-" rel="noreferrer noopener">rights plan and a new equity investment</a>.
In particular, the company inked a definitive deal with&nbsp;Immersion Corporation&nbsp;(NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/IMMR#NASDAQ">IMMR</a>) and existing shareholders and strategic partners regarding new equity and refinancing transactions to boost long-term financial position.
After closing the transactions in June 2024, Barnes &amp; Noble will receive $95 million of new capital through a $50 million equity investment and a $45 million fully backstopped equity rights offering led by immersion.
The deal is projected to infuse net cash proceeds after transaction costs of about $75 million.
Also, the company plans to eliminate about $34 million of debt through equitization of second lien term loans, reflecting the strong support of key strategic partners.
See Also: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/04/38273842/s-p-500-due-for-classic-10-correction-wall-street-veteran-warns-why-they-expect-zer">S&amp;P 500 Due For &#8216;Classic 10% Correction,&#8217; Wall Street Veteran Warns: Why They Expect Zero Rate Cuts In 2024</a>
Barnes &amp; Noble has received commitments to refinance its existing asset-backed loan facility, which provides access to a $325 million facility maturing in 2028.&nbsp;
Apart from this, the board of directors approved adopting a short-term stockholder rights plan and declared a dividend distribution of one preferred share purchase right on&nbsp;<a href="https://www.benzinga.com/pressreleases/24/04/b38270604/barnes-noble-education-adopts-short-term-stockholder-rights-plan" target="_blank" rel="noreferrer noopener">each outstanding common share</a>.
The rights will be exercisable only if a person or group acquires 10% or more of the company&#8217;s common shares and each right will entitle stockholders to buy one one-thousandth of a share of a new series of junior participating preferred stock at an exercise price of $5.00.
Investors can gain exposure to the stock via IShares Microcap ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IWC#NYSE">IWC</a>) and Invesco FTSE RAFI US 1500 Small Mid ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/PRFZ#NASDAQ">PRFZ</a>).
BNED Price Action: Barnes &amp; Noble Education shares are down 68.91% at 0.22 cents at publication Tuesday.
Read Next: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/04/38273192/goldman-sachs-boasts-near-perfect-q1-results-5-analysts-zero-in-on-core-strengths">Goldman Sachs Boasts &#8216;Near-Perfect&#8217; Q1 Results, 5 Analysts Zero In On &#8216;Core Strengths&#8217;</a>
Photo: Joyseulay via Shutterstock

Why Barnes & Noble Education Shares Are Diving Today

Casa Systems, Inc.&nbsp;(NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/CASA#NASDAQ">CASA</a>) shares are tumbling after the company initiated a court-supervised Chapter 11 sale process to achieve value-<a target="_blank" href="https://www.benzinga.com/pressreleases/24/04/g38065337/casa-systems-initiates-court-supervised-chapter-11-sale-process-for-businesses" rel="noreferrer noopener">maximizing sales of its businesses</a>.
The company filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.
Casa Systems inked an asset purchase agreement to sell its 5G Mobile Core and RAN businesses, including Axyom Cloud Native 5G Core Software &amp; RAN Assets, to&nbsp;Lumine Group&nbsp;(OTC:<a class="ticker" href="https://www.benzinga.com/stock/LMGIF#OTC">LMGIF</a>).&nbsp;
The company has asked the Bankruptcy Court for approval to complete the transaction by the end of April.
Apart from this, Casa Systems entered into a stalking-horse asset purchase agreement to sell its Cable business to an affiliate of&nbsp;Vecima Networks, Inc&nbsp;(OTC:<a class="ticker" href="https://www.benzinga.com/stock/VNWTF#OTC">VNWTF</a>).&nbsp;
The company has asked the Bankruptcy Court to approve procedures for soliciting additional bids and to set an auction for mid-May.
In connection with the sale process, the company inked a Restructuring Support Agreement (RSA) with over 98% of its senior secured lenders, allowing Casa to use its cash on hand and anticipated Cloud/RAN Sale proceeds to fund its operations and Chapter 11 process.
Michael Glickman, Chief Executive Officer, said, &#8220;Like many in our sector, Casa has experienced a significant decline in revenue and profits due in large part to industry-wide downward capital investment and procurement trends in the cable and telco markets.&#8221;
&#8220;We also have incurred significant investments to bring our 5G Mobile Core and RAN products to market. We believe the sales of our businesses through a Chapter 11 process will maximize value, preserve jobs and minimize disruption for our customers.&#8221;
Investors can gain exposure to the stock via&nbsp;IShares Microcap ETF&nbsp;(NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IWC#NYSE">IWC</a>) and&nbsp;Vanguard Information Tech ETF&nbsp;(NYSE:<a class="ticker" href="https://www.benzinga.com/stock/VGT#NYSE">VGT</a>).
Price Action: CASA shares are down 80.4% at $0.05 on the last check Wednesday.
Photo via Wikimedia Commons

Many investors like the allure of small cap stocks. Buying the next Apple Inc. (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/aapl#NASDAQ">AAPL</a>) or Amazon.com, Inc. (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/amzn#NASDAQ">AMZN</a>) while they&#39;re still in their infancy is every investor&rsquo;s dream.
But investing in small cap stocks can be difficult. Many of them aren&rsquo;t covered by the Wall Street investment firms so it&rsquo;s hard to find research and opinions on them.
Investors who are seeking exposure to this part of the investment universe but don&rsquo;t want the risk of owning individual stocks should consider ETFs. These include the iShares Micro-Cap ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/iwc#NYSE">IWC</a>) and the iShares Russell 2000 ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/iwm#NYSE">IWM</a>).
IWC tracks the Russell Microcap Index. It invests in companies that have a market cap between $50 million and $300 million.
<img alt="iwc.png" src="https://www.benzinga.com/files/u344550/iwc.png" style="height:400px; width:640px" />
IWM tracks the Russell 2000 index. It invests in companies that have a market cap between $300 million and $2 billion.
<img alt="iwm.png" src="https://www.benzinga.com/files/u344550/iwm.png" style="height:400px; width:640px" />

Micro-cap stocks are an alluring yet confounding segment of the market. Stocks in this segment are generally considered to have market values ranging from $50 million to $300 million.
<h3>Taking Off Some Micro-Cap Volatility Risk&nbsp;</h3>
Due to those low numbers, micro-cap names typically lack analyst coverage and significant institutional buying. Even without those traits, the asset class offers significant upside potential. But stock picking among the smallest of the small can be difficult.
Enter the iShares Micro-Cap ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/iwc#NYSE">IWC</a>), which includes stocks with market values up to $1 billion, taking some of the volatility edge off micro-cap investing.
<h3>Micro-Cap Benefits, Risks&nbsp;</h3>
&ldquo;However, this asset-class is not without its drawbacks. Chief among these are greater volatility and limited liquidity and capacity,&rdquo; <a href="https://www.morningstar.com/articles/957944/micro-caps-under-the-microscope">Morningstar said in a recent note</a>.
&ldquo;Also, for fund investors, there are few options for exposure to this sliver of the market. It is a market segment where indexing is challenged. Fortunately, there are some better alternatives.&rdquo;
The $836.6-million IWC, which tracks the Russell Microcap Index and holds nearly 1,400 stocks, is one of those alternatives.
This segment of the market may hold potential benefits within the context of diversified equity allocation, Morningstar said.&nbsp;
&ldquo;Most notably, micro-caps have some diversification potential. This is evidenced by the fact that they are not perfectly correlated to other segments of the U.S. market-cap spectrum.&rdquo;
In other words, investors with large-cap heavy portfolios may want to consider IWC not just for the size effect benefits, but the benefits of reduced correlations as well.
<h3>&#39;The Primary Drawback&#39; Of Micro-Caps&nbsp;</h3>
IWC has perks, but there are disadvantages to be expected. An obvious one is that many micro-cap companies aren&#39;t profitable or are in outright financially precarious positions.
&ldquo;The primary drawback of investing in micro-caps is their higher volatility compared with large-, mid-&nbsp;and small-cap stocks,&rdquo; according to Morningstar. &ldquo;Also, the costs of obtaining information on these companies and monitoring them tends to be higher as they receive less &mdash; if any &mdash; attention from Wall Street.&rdquo;
IWC allocates nearly half its combined weight to the financial services and health care sectors. The former gives the fund some steadiness and exposure to smaller, but profitable banks with value stock appeal.
Micro-cap healthcare names usually dwell in the biotechnology and medical device spaces, meaning they are reliant&nbsp;on regulatory approvals and probably aren&#39;t close to profitability. As a trade-off, those stocks offer significant growth potential.
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An ETF For Gains From The Equity Market's Smallest Corner

Smaller stocks and corresponding exchange traded funds have recently been enjoying renewed fanfare and rightfully so. Year-to-date, the iShares Russell 2000 ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/iwm#NYSE">IWM</a>) is up 9.6 percent, or double the gains of the large-cap S&amp;P 500.
Smaller small-caps, or micro-caps, are performing even better. The performance of the&nbsp;iShares Micro-Cap ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/iwc#NYSE">IWC</a>) confirms as much.
<h3>
	What Happened</h3>
The $1.03-billion IWC is higher by 11.3 percent year-to-date. IWC, which is nearly 13 years old, tracks the Russell Microcap Index.
IWC&#39;s underlying index is &ldquo;exceeding the performance of Russell U.S. indexes measuring small-, mid-, large- and mega-cap stocks,&rdquo; according to new research from <a href="http://www.ftserussell.com/blog/index-idea-micro-caps-top-caps-ytd">global index provider FTSE Russell</a>.
IWC holds 1,359 stocks. At the end of April, the average market capitalization of the Russell Microcap Index&#39;s components was $657 million.
<h3>
	Why It&#39;s Important</h3>
The domestic focus of smaller stocks is helping the asset class, a scenario that is benefiting micro-caps as well.
&ldquo;Being more domestic has insulated micro-caps from trade tensions, geopolitical worries and the earnings drag stemming from a stronger dollar,&rdquo; said FTSE Russell Managing Director Alec Young.
The less global nature of micro-caps gives more exposure to positive trends such as tax reform, deregulation and faster U.S. economic growth, Young said.&nbsp;
&quot;All these tailwinds are helping drive faster profit growth for micro-caps relative to their blue chip counterparts, helping fuel YTD leadership.&rdquo;
Translation: the strong dollar that weighs on multinational large-caps is not much of a burden for micro-caps.
<h3>
	What&#39;s Next</h3>
Not surprisingly, IWC has a growth feel. Health care names, most of which are biotechs or pharmaceuticals companies, represent over one-quarter of the fund&#39;s weight, while the technology sector is 13 percent of IWC&#39;s weight.
Still, IWC&#39;s annualized volatility to this point in 2018 has been slightly less than the small-cap IWM&#39;s. Over the past three years, IWC has been barely more volatile than IWM. Since the start of the current quarter, investors have added nearly $55 million to IWC.
Related Links:
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ETF Performance Reflects The Strength Of Micro-Caps In 2018

It has been a ho-hum year for small-cap stocks as highlighted by a gain of 0.75 percent for the benchmark Russell 2000, and things are mixed for micro-cap exchange-traded funds &mdash; as just one of the three ETFs dedicated to smaller small-caps is up on the year.
An interesting election year phenomenon could be to blame for the slack showings for micro-caps to this point in the year, and investors should be careful if they are hoping for significant upside for these ETFs as Election Day nears.
<h3>Election Trends</h3>
&ldquo;As the US rapidly moves toward its next general presidential election, FTSE Russell examined the historical backtested performance of the Russell Microcap Index in more detail, finding that election year returns have been particularly variable for US microcaps. Specifically, general election years featuring an incumbent, notably 2004 and 2012, have been much kinder to microcaps than &#39;open election&#39; years featuring an entirely new slate of candidates, notably 2008 and thus far in 2016,&rdquo; said <a href="http://ftse.com/">FTSE Russell</a>, one of the largest providers of indexes for use with ETFs.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/news/16/05/8031482/1-out-of-every-10-americans-wants-gary-johnson-as-president-but-who-is-this-guy">1 Out Of Every 10 Americans Wants Gary Johnson As President, But Who Is This Guy?!</a></bzrelatedlink>
The $702.3 million iShares Russell Microcap Index (ETF) (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>) follows the Russell Microcap Index and is home to nearly 1,420 stocks. Year-to-date, IWC is down 2.7 percent.
The Wilshire Micro-Cap ETF (based on the Wilshire US Micro-Cap Index) (NYSE: <a class="ticker" href="/stock/wmcr#NYSE">WMCR</a>), which follows the Wilshire US Micro-Cap Index, is off 3.7 percent this year. The PowerShares Zacks Micro Cap (ETF) (NYSE: <a class="ticker" href="/stock/pzi#NYSE">PZI</a>), which follows the Zacks Micro Cap Index, is bucking the aforementioned micro-cap election year trend with a gain of 1 percent.
<h3>Why PZI?</h3>
The reason why PZI is outperforming rival micro-cap ETFs is somewhat obvious. Healthcare stocks have been plagued by election year rhetoric and PZI allocates just 3.5 percent of its weight to that sector whereas IWC and WMCR each allocate more than 18 percent of their respective lineups to healthcare names.
PZI allocates nearly half its weight to financial services names, which are pricing in a June rate hike from the Federal Reserve. IWC allocates over 31 percent of its lineup to financial services names, making that sector the ETF&#39;s biggest sector weight.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/05/8029916/hewlett-packard-enterprises-ceo-a-donald-trump-presidenc">Hewlett Packard Enterprise's CEO: A Donald Trump Presidency Wouldn't Be Good For Business</a></bzrelatedlink>
&ldquo;Whether it is about &lsquo;hope and change&rsquo; as then candidate Barack Obama pledged in 2008, or presumptive nominees Donald Trump pledging to &lsquo;make America great again&rsquo; and Hillary Clinton&rsquo;s &lsquo;fighting for us&rsquo; in our current general election campaign, market indexes tend to reflect the market anxiety and uncertainty that is a natural by-product of political change. And while four presidential elections years don&rsquo;t necessarily make a definitive trend, index returns indicate that market uncertainty has not been kind to the smallest listed US companies,&rdquo; said Catherine Yoshimoto of FTSE Russell in a note.

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Approaching Tactical Bounces In Bear Markets

	During market corrections, correlations tend to go to one across asset classes, but more specifically global equity markets tend to move together. Throughout the global equity markets and U.S. sectors I follow, many tactical downside targets were met with momentum diverging positively, suggesting a relief-rally may occur over the next few weeks. Many of these markets followed up their mid-week reversals with follow through to end the week, which adds to the case for additional upside over the short-term. It&rsquo;s important to realize though that most of these moves are occurring within the context of structural downtrends / bear markets, which means this bounce is just that for the time being. Significantly more time will be needed to repair the long-term structural damage these markets have experienced.

	How you approach this type of scenario will depend on your plan as a market participant, but for me it really boils down to two main scenarios. Either you can choose to take tactical long positions to capitalize on these bounces, or you can simply wait for them to play out and re-enter on the short side at higher levels. Some people will do both, others may do something different altogether.

	If you&rsquo;re looking to participate in these counter-trend rallies, how do you figure out what&rsquo;s the best way to express the theme of counter-trend rallies occurring throughout the global equity markets when almost everything seems to participate in one capacity or another?

	I&rsquo;m sure there are a million schools of thought on this, but for me, I like to look for stocks / sectors / markets where the risk is well defined and the weight of evidence suggests that the probability of a bounce is high, relative to the other setups out there. I find that this occurs most often in names that have found support at levels where both structural and tactical downside targets were hit, with momentum diverging on multiple time frames. This means often passing on the more beaten down sectors where mean reversion could occur in rip-your-face-off fashion, in favor of a trade where the weight of evidence suggests there is a higher probability of success, but less potential reward. Some may be comfortable taking the lower probability trade in exchange for a higher potential reward, but I tend to lean toward what I view as higher probability trades.

	To illustrate exactly what I&rsquo;m talking about, I&rsquo;ll outline an example of each from the current market environment. I&rsquo;ll also list a few other names I&rsquo;m watching / doing more work on toward the end of the post, but won&rsquo;t post the charts of them here for the sake of space.

	&nbsp;

	<img alt="" src="https://allstarcharts.com/wp-content/uploads/2016/01/ewtbruni.png" style="width: 620px; height: 623px;" />

	The daily chart shows the failed breakdown below the August lows, which also corresponds with the long-term support discussed on the weekly chart. Momentum diverged at the recent lows with prices breaking back above the prior lows to confirm the failed breakdown and momentum divergence. This provides a level to trade against where the risk is well-defined, while the rest of the evidence suggests mean reversion may be underway in this market.

	<img alt="" src="https://allstarcharts.com/wp-content/uploads/2016/01/ewtbrini2.png" style="width: 620px; height: 623px;" />

	In the case of Taiwan, there is strong evidence across multiple time-frames that suggests a counter-trend mean reversion is taking place and that the risk is well-defined. Prices are 22% below the 200 day moving average, and though prices won&rsquo;t get there in a straight line, a calculated entry can provide a great risk/reward opportunity on the long side.

	Lower Probability But Higher Potential Reward: S&amp;P Metals &amp; Mining (XME)

	The S&amp;P Metals &amp; Mining ETF has been in a structural downtrend for the past 5 years or so, and just this past week reached another structural downside target at the 261.8% Fibonacci extension of the 2013-2014 rally. This occurred while momentum diverged and prices were extended from their accelerated trend lines. These developments may suggest that some mean reversion could start from current levels, but it must also be recognized that this comes within the context of prices being just off their all-time lows.

	&nbsp;

	<img alt="" src="https://allstarcharts.com/wp-content/uploads/2016/01/xmebruni.png" style="width: 620px; height: 623px;" />

	The daily chart shows the failed breakdown that occurred late last week with momentum diverging. This combined with the developments on the weekly chart provide a clear level to trade against. Prices are 67% below their 200 day moving average and this sector is heavily shorted, so a short squeeze could occur in the coming weeks if this failed breakdown holds. Although the potential reward is higher, it comes within the context of having less evidence / a lower probability than a setup like the one I discussed in Taiwan (EWT).

	<img alt="" src="https://allstarcharts.com/wp-content/uploads/2016/01/xmebruni2.png" style="width: 620px; height: 623px;" />In the case of the S&amp;P Metals &amp; Mining sector, there is some evidence across multiple time frames to suggest a counter-trend mean reversion may be in its early stages. The risk is well-defined, but there is less total evidence than a scenario like Taiwan, simply because we are at a level that hasn&rsquo;t been tested as extensively as the support levels in EWT have (or at all for that matter). With that being said, the lower probability nature of this setup is compensated by a potentially higher reward.

	Other markets that are exhibiting similar characteristics to Taiwan in varying degrees are:

	Micro-caps (IWC), S&amp;P Oil &amp; Gas Exploration &amp; Production (XOP), Airlines (XAL), Broker Dealers (IAI), Emerging Markets (EEM), Hong Kong (EWH), China Large-Cap (FXI), Russia (RSX), Chile (ECH), South Africa (EZA), and Netherlands (EWN).

	The Bottom Line: There&rsquo;s no right or wrong way to approach bounces during bear markets, but it is important to have a plan with which you approach trading counter-trend rallies when they do occur. When these types of market conditions are present, this approach is generally how I help narrow down my thoughts on which areas of the market I&rsquo;d like to focus my efforts and capital. It should also be noted that this represents the middle phase of my Top-Down Approach, and that the information I gather from this type of analysis may be expressed in a way that&rsquo;s different than simply trading the underlying asset class outright. That&rsquo;s a conversation for another day / post though.

	As always, if you have any questions feel free to reach out and I&rsquo;ll get back to you as soon as I can. <a href="http://stocktwits.com/BruniCharting?q=BruniCharting">@Brunicharting</a>

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Bruni On Approaching Tactical Bounces In Bear Markets

With all the noise surrounding the recent sell-off in the U.S. stock market, it can be easy to forget that there are some areas of the market doing much better than others, and there is a lot of money to be made in the widening of those spreads. This is where intermarket analysis and ratio analysis can really become profitable for a portfolio. Today we are looking at the biggest companies in America, as a group, breaking out to new highs relative to the smallest companies in America: the Micro-caps.

	What this ratio tells us, as investors, is the direction of the flow of money. Are institutional dollars flowing into the riskier, smaller companies in the stock market, or is it going into the larger, more traditional, relatively safer segment of the market that is, the Mega-caps. To me, there is no better gauge out there for the Mega-caps other than the old Dow Jones Industrial Average. The 30 components that make up this Index are 30 of the largest companies in America: Apple, Microsoft, Exxon, JNJ, General Electric, etc. When we compare this group to the Russell Micro-cap Index, we get a very clear picture of the direction of money flow.

	Here is a 10 year chart of the Dow Jones Industrial Average ETF (NYSEARCA:DIA) relative to the iShares Russell Microcap Index (ETF) (NYSEARCA:IWC)

	<img alt="" src="https://allstarcharts.com/wp-content/uploads/2016/01/1-10-16megacapvsmicrocapblog.png" style="width: 620px; height: 462px;" />

	What stands out to me at first glance is the failed breakdown in early 2014 below former support that went back to 2008. This key level was also the 61.8% Fibonacci retracement of the entire 2006-2008 rally. To start 2016, this ratio is now breaking out above the downtrend line from 2012. In my experience, that failed breakdown will be the catalyst to send this chart soaring back towards those former highs from 2008 and 2011. That&rsquo;s a long way to go.

	We&rsquo;re looking at another 17% to the upside in this chart that I think can happen quickly. This potential return comes with a long position in the Dow Jones Industrial Average and an equivalent short position in the Russell Micro-cap Index. That&rsquo;s one way to take advantage of this, from an execution standpoint.

	On the other hand, just looking at this from an analytical perspective, if my thesis is correct and this breakout in Mega-caps relative to micro-caps is for real, then we&rsquo;re looking at a serious shift out of the more speculative micr0-cap stocks and into the more conservative, &ldquo;safer&rdquo;, mega-cap names. This is not something that usually occurs when the market overall is going up, but normally on when it&rsquo;s on its way down.

	This fits in well with my overall bearish thesis coming into the year. I&rsquo;ve been pounding the table <a href="http://allstarcharts.com/dow-jones-industrial-average-flirts-disaster/">to be short</a>, and that there is <a href="http://allstarcharts.com/20-downside-coming-sp500/">a lot more downside coming</a>. So I have to say that I am happy to see this particular ratio confirm what we&rsquo;re seeing elsewhere.

	This was originally posted on <a href="http://allstarcharts.com/about/">All Star Charts</a>

SPDR Dow Jones Industrial Average ETF Trust

U.S. Mega-Cap Stocks Break Out To Start 2016

One of the themes in the stock market this year has been the under-performance of small-cap stocks &ndash; and conversely, the out-performance of large-caps. Today&rsquo;s Chart Of The Day is a caricature of that theme as it involves a comparison between the very smallest stocks, micro-caps, and the very largest, mega-caps. Not surprisingly, the micro-caps have taken it on the chin this year relative to the mega-caps. In the past few days, however, the deterioration in micro-caps has accelerated, reaching a dubious milestone.

	As measured by the ratio between the iShares Russell Micro-Cap ETF (IWC) and the Rydex Russell Top 50 ETF (XLG), micro-caps are at a 3-year low and have broken their uptrend that has been in place since 2009.

	<img alt="" src="https://40.media.tumblr.com/995c4204a58fe4bc205556345ce24694/tumblr_inline_nzh1oaQjnJ1sq14jh_500.jpg" style="width: 600px; height: 396px;" /> 
	&ldquo;So what?&rdquo; you may say. &ldquo;Something always has to be leading and something else has to be lagging&rdquo; That is true. However, it is more bullish for the broad stock market when the smaller, more speculative issues are leading the way. When that is the case, it can be a sign of relative comfort and willingness to take on risk on the part of investors. Money will flow into stocks more readily under those circumstances.

	However, when the micro-caps are lagging and the largest, seemingly most secure stocks are leading the way, it can be a sign of apprehension by investors to take risk. Money is less likely to find its way into the stock market under those &ldquo;risk-off&rdquo; circumstances.

	Sure, we all know that these divergences can persist for some time. 2015 is a testament to that. Eventually, though, the small-cap weakness tends to leak into the broader market, including the large caps. The concern at this point is that the divergence has already persisted for some time. In fact, the micro-cap:mega-cap ratio topped back in March of 2014. So we are approaching 2 years of lagging small caps. At this point, the market segments that have thus far been able to avoid similar weakness are likely on borrowed time.

	So, does that mean go out and sell all of your strong-performing large-caps also? Not at all. In fact, the relative weakness in small-caps is due, naturally, in part to the healthy action in the large-caps. We are strong proponents of relative strength, i.e., buy what is going up. Therefore, if you are going to own stocks right now, the large-cap space continues to be a place that warrants an over-weight allocation.

	What about the strong seasonal pattern for small-caps? That is certainly a potential factor. As we noted in a few posts earlier this month, December has been exceedingly bullish for small-caps, particularly following an intra-month drawdown. Even if it wasn&rsquo;t a seasonally positive time of year, a mean-reversion bounce by the small-caps in some fashion would not be too surprising.

	However, we will go back to the topic of relative strength. What happens in the very short-term is highly unpredictable. However, concentrating on longer-term relative strength when allocating investments has worked best for us. Buying a stock in a long-term uptrend provides greater margin for error than trying to catch a falling knife. Even if you do not time your purchase ideally, you are swimming with the tide and are more likely to eventually see the position go your way.

	The trend is your friend, in other words. And the trend continues to be strongly in the favor of mega-caps and against micro-caps. And while there may be bouts of mean-reversion in the small-caps&rsquo; favor, a durable shift their way is unlikely at this time. On the contrary, given the recent relative breakdown, an acceleration of the current trend away from micro-caps may even be forthcoming.

	More from <a href="http://jlfmi.tumblr.com/About">Dana Lyons</a>, JLFMI and My401kPro.

	This was originally posted on <a href="http://jlfmi.tumblr.com/post/135360579925/slump-in-smallest-stocks-vs-biggest-stocks-is">Dana Lyons&#39; Tumblr</a>

Are Small Stocks Warning Of A Large Problem?

The recent rise in the value of the U.S. dollar versus its peers could eventually hurt the large multinational companies, however the smaller guys may benefit.

	During the third quarter the U.S. Dollar Index was up 7.7 percent, the second best quarterly gain since 1992.

	As the greenback increases, it makes products produced in the U.S. more expensive for foreign buyers. On the flip side a stronger dollar could benefit the smaller U.S.-based companies that generate the majority of their sales in the country.

	Approximately 77 percent of sales from the Russell 2000 companies from the U.S. versus more than 50 percent outside the country for the S&amp;P 500 stocks.

	With the small-cap stocks moving into correction mode this week and greatly underperforming their larger peers it appears it is time to look at bargains within the asset class. Drilling down even further to the micro-cap stocks will only increase the exposure to U.S. sales and offer unique opportunities to investors.

	One option for investors is to take a broad brush and invest in the entire asset class of micro-cap stocks via an ETF. The iShares Micro-Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>) consists of 1,384 micro cap stocks, which are characterized by companies that have a market cap between $50 million and $300 million.&nbsp;

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/14/10/4910743/3-retailers-for-a-potentially-robust-holiday-season">3 Retailers For A Potentially Robust Holiday Season</a></bzrelatedlink>

	That being said, there are a handful of stocks in the portfolio that are well above the $300-million figure.

	The top individual holdings include Avanir Pharmaceuticals Inc. (NYSE: <a class="ticker" href="/stock/avnr#NYSE">AVNR</a>) with a 0.60-percent holding, Tri Pointe Holdings Inc. (NYSE: <a class="ticker" href="/stock/tph#NYSE">TPH</a>) at 0.58 percent, and Ambarella Inc (NASDAQ: <a class="ticker" href="/stock/amba#NASDAQ">AMBA</a>) at 0.38 percent. The ETF is up 1 percent over the last year and down 10 percent over the last six months.

	The sellers have been in control of IWC and the sector over the last few months as the ETF hit the lowest level since October 2013 this week. The ETF has an expense ratio of 0.60 percent.

	There is also the option of investing in individual names, all of which are components of IWC.

	Paycom Software Inc (NYSE: <a class="ticker" href="/stock/payc#NYSE">PAYC</a>) is a cloud-based human capital management system that provides services like HR management, payroll and talent acquisition.

	PAYC second quarter revenues increased to $32.7 million from $23.4 million one year earlier. Since going public six months ago, the stock up 3 percent. It had a rally starting in the beginning of August to the middle of September and has since pulled back to support around the 50-day moving average near $16.

	Consolidated Communications Holdings Inc. (NASDAQ: <a class="ticker" href="/stock/cnsl#NASDAQ">CNSL</a>) provides a range of communication services to residential and business clients. Some of their services include high-speed broadband Internet access, custom calling features and private lines. CNSL&rsquo;s second quarter financials looks fairly similar to the same quarter a year prior.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/etfs/specialty-etfs/14/10/4907338/new-etf-for-international-ipos">New ETF For International IPOs</a></bzrelatedlink>

	Revenues decreased from $151.3 million to $151 million, while net income increased to $9.9 million from $9.3 million. The stock is up 42 percent over the last 12 months and 25 percent over the last six months. It has pulled back after a two-month rally has started to consolidate around $25.

	BioDelivery Sciences International Inc (NASDAQ: <a class="ticker" href="/stock/bdsi#NASDAQ">BDSI</a>) is a specialty pharmaceutical company that focuses in the area of pain management and addiction medication. BDSI was able to increase total revenue by five times in the second quarter. Going from $2.8 million last year to $13.9 million in the same quarter this year.

	The company was also able to increase their cash and cash equivalents from $23.2 million to $78.4 million from the end of fiscal 2013. Cash on hand like this could allow BDSI to acquire smaller pharmaceutical companies and further pad their bottom line, among other things. The stock is greatly outperforming its peers with a gain of 247 percent over the last 12 months and 130 percent over the last six months.

	Due to the small size of the stocks mentioned and the volatility that comes with micro-cap stocks the best option for most investors is the ETF. However, if individual stocks fit into a portfolio there can often be big winners in the smallest stocks in the market.

Sector ETFs

AMBA

AVNR

BDSI

CNSL

PAYC

Micro-Cap ETF And The Falling Greenback

After Tuesday&#39;s trading session, the bulls appear to have regained control of the markets.

	What a difference a few days can make in this business, right? Just about a week ago, traders were freaking out in response to David Tepper&#39;s suggestion that hedge funds shouldn&#39;t have the pedal to the metal at this time.

	Just like that, two days of hard-earned gains were reversed, the momentum stocks were back in the tank and it looked like the bears were about to win the day.

	The big correction traders began looking for never came: Russia didn&#39;t annex Ukraine, the ECB began serious talks to improve the economy in Europe and economic data in the US continued to beat expectations.

	Related: <a href="http://www.benzinga.com/general/education/14/05/4584742/can-the-bull-market-survive-a-momentum-meltdown">Can The Bull Market Survive A Momentum Meltdown?</a>

	On that note, the final GDP growth rate for Q1 is likely to come in below zero. But, the good news is that it can be blamed on the weather. And the general consensus seems to be that Q2&#39;s growth rate for the economy might have a four-handle on it.

	As such, investors are starting to realize that growth in the U.S. might not be dead after all. The bottom line is that with improving economic expectations comes higher stock prices - especially when expectations are low.

	S&amp;P 500 Weekly&nbsp;

	<img alt="spx_weekly_5-27-14.png" src="/files/images/2014/May/28/spx_weekly_5-27-14.png" style="width: 540px; height: 432px;" />

	Based on the weekly chart of the S&amp;P 500, one couldn&#39;t be blamed for wondering what all the fuss has been about lately.

	The action over the past few days has been very important. It is crucial to run through the charts because, as they say, a picture can indeed be worth a thousand words.

	S&amp;P 500 Daily&nbsp;

	<img alt="spx_daily_5-27-14.png" height="461" src="/files/images/2014/May/28/spx_daily_5-27-14.png" width="625" />

	After Friday, the key question was whether or not the S&amp;P 500 had actually broken out of the recent resistance zone. Yes, the index did close at an all-time high, but a magnifying glass was needed to see it on a chart.

	Given that follow-through has been exceptionally tough to come by this year, well, a lot of folks had their doubts about Friday&#39;s rally.

	However, with Monday&#39;s gain tacked on, it is fairly clear that the S&amp;P 500 has broken out to the upside. Therefore, the bulls will now be looking to defend their gains during the next bout of selling. The bottom line is that as long as the S&amp;P 500 stays above 1900, the bulls are still in control of the markets.

	NASDAQ Daily&nbsp;

	<img alt="nas_daily_5-27-14.png" height="461" src="/files/images/2014/May/28/nas_daily_5-27-14.png" width="625" />

	Some will argue that the chart of the NASDAQ isn&#39;t nearly as compelling. Those seeing the glass as half empty will contend that the tech-heavy index is a long way from confirming the S&amp;P&#39;s new high and as such, represents a technical divergence.

	Related: <a href="http://www.benzinga.com/general/education/14/05/4584865/does-the-s-p-have-anywhere-to-move">Does The S&amp;P Have Anywhere To Move?</a>

	In the opposing dugout, those adorned in rose-colored glasses may argue that the NASDAQ doesn&#39;t have to &quot;confirm&quot; anything at this stage. No, the idea here is that the downtrend that had been in place for about two months appears to have ended.

	Yes, the NASDAQ has resistance overhead to deal with. Yes, this could certainly be problematic at some point - perhaps soon. But the key is that stocks appear to be trending higher at the moment.

	And, since just about everybody on the planet was expecting the bears to be in control of the markets, well, the fact that there are uptrends to be found on many charts is certainly a positive development.

	The Micro-Caps, which is where the real damage occurred during the mo-mo meltdown, appear to have stabilized to some extent.

	iShares Micro-Cap ETF (IWC) Daily&nbsp;

	<img alt="iwc_daily_5-27-14.png" height="461" src="/files/images/2014/May/28/iwc_daily_5-27-14.png" width="625" />

	To be sure, the chart of the iShares Micro-Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>) is ugly. But remember, history has shown that if stocks involved with a momentum meltdown are able to stabilize, then the overall market needn&#39;t have to experience a serious decline.

	The thinking is fairly straightforward here. Up until the biotech, internet and social media darlings started to tank in earnest, the stock market was in pretty good shape. But when the leaders get hit - and get hit hard - a &#39;mo-mo meltdown&#39; can weigh on investor sentiment. Oftentimes, the meltdown can cause investors to lose faith in the overall market, which, in turn, produces more selling and a decent sized correction.

	However, IF the overall market can survive the meltdown and IF the mo-mo names don&#39;t drag down the rest of the market with them, the market has shown several times in the past that it can avoid calamity.

	So, IF the S&amp;P can remain above 1900 for a while, IF the NASDAQ can stay above 4150 and IF the low in the IWC can hold up, then the bulls might be able to begin yet another leg higher in what continues to be a most impressive bull market run.

	Positions in stocks mentioned: SPY

Previews

The Bulls Have Cause For Celebration, But Can It Last?

It is safe to say the current stock market is frustrating.

	But unlike 2013, when the environment favored the bulls for the vast majority of the year -- and it was the bears that wound up pounding their heads up against the wall -- in 2014, both teams appear to be experiencing some frustration.

	The bottom line is simple: From a big-picture standpoint, stocks won&#39;t go up, and yet the S&amp;P 500 can&#39;t seem to go down either.

	Related: <a href="http://www.benzinga.com/general/education/14/05/4559239/cheer-up-a-portfolio-pep-talk-for-investors">Cheer Up! A Portfolio Pep Talk For Investors</a>

	While the S&amp;P 500 finished Friday at a fresh all-time high, it did so by the slimmest of margins. Take a look at the chart below. Is that a breakout? Or simply a set-up for another in a long string of &quot;fake-outs&quot;?

	S&amp;P 500 Daily&nbsp;

	<img alt="spx_daily_5-26-14.png" src="/files/images/2014/May/27/spx_daily_5-26-14.png" style="width: 540px; height: 398px;" />

	Usually, when such a question occurs, it pays to review the charts of the other major indices. In short, if the DJIA, NASDAQ and/or Russell 2000 confirm the move in question, it is safe to assume that a breakout is a breakout. However, in this case, nothing is clear.

	Dow Jones Industrial Average Daily&nbsp;

	<img alt="djia_daily_5-26-14.png" height="461" src="/files/images/2014/May/27/djia_daily_5-26-14.png" width="625" />

	In looking at the chart of the Dow, it is clear that there is no breakout confirmation evident. In fact, there is still some important resistance overhead to deal with.

	The NASDAQ, which was impacted by the recent momentum meltdown couldn&#39;t be farther from confirming an upside breakout either.

	NASDAQ Daily&nbsp;

	<img alt="nas_daily_5-26-14.png" height="461" src="/files/images/2014/May/27/nas_daily_5-26-14.png" width="625" />

	However, an argument can be made that the downtrend in the NASDAQ may have ended. In order to confirm that the worst of the decline is behind it, the NASDAQ will need to continue to move up in the coming week and, perhaps more importantly, NOT fall back below the 4150 area.

	On the other hand, the chart of the micro-caps, which bore the brunt of the mo-mo meltdown, continues to look ugly.

	iShares Micro-Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>) Daily&nbsp;

	<img alt="iwc_daily_5-26-14.png" height="461" src="/files/images/2014/May/27/iwc_daily_5-26-14.png" width="625" />

	However, those seeing the glass as half-full will argue a base could be forming in the micro-cap space. And as one may recall, the key to the overall market moving up from here is for the micro-caps to STOP going down. They don&#39;t necessarily need to rebound. No, these beaten-down stocks just have to stabilize.

	So Is The Environment Improving, Or Not?

	Whenever this type of environment occurs, it is usually best to put one&#39;s emotions aside and review the readings of some market indicators. In short, it can be quite helpful to look at cold, hard numbers when things are &quot;iffy&quot;.

	To be clear, it is a good practice to review market indicators on a daily basis. However, looking at indicators over different time frames is an important way to diversify one&#39;s analysis.

	The &quot;State&quot; of the Market Environment

	Although there are some overlapping areas, the Weekly Environment Model is comprised of ten individual indicators or models. These ten can then be broken down into the following categories: tape, trend, sentiment, economic, monetary and the overall risk environment.

	In terms of weighting, the majority of the model weight is given to tape and trend indicators (60 percent) while the &quot;external&quot; factors account for 40 percent of the model. This fits with the view that one&#39;s overall objective is to stay in line with what the market IS doing.

	In short, whenever there are questions, the price/tape action of the market should always be viewed as the final arbiter. In addition, tape and trend indicators serve as excellent stop-loss signals for those times when the market&#39;s moves diverge from the &quot;logic&quot; of things like economics, news or earnings.

	Due to changes in data availability, the overall model was reworked at the end of 2011. However, the live performance hasn&#39;t been too bad. In 2012, using the leveraged ProShares Ultra S&amp;P 500 (NYSE: <a class="ticker" href="/stock/sso#NYSE">SSO</a>) when the model was positive, the ProShares Short S&amp;P 500 (NYSE: <a class="ticker" href="/stock/sh#NYSE">SH</a>) on negative signals, and a cash equivalent on neutral signals, the test of the model would have produced a return of 46.2 percent (compared to the S&amp;P 500 cash index return of 16.3 percent).

	Then in 2013, the model&#39;s return would have been 38.30 percent, versus S&amp;P 500&#39;s return of 33.26 percent. So while the history isn&#39;t long, it does seem worth watching what this model has to say each week.

	Since the explanation of the models and indicators that make up the weekly market environment model as well as the analysis of the current readings covers a fair amount of ground, the review will be broken up over the week.

	The Trend Indicators

	The weekly environment model contains three indicators that are dedicated to the trend of the overall market. For starters, it rates the&nbsp;short-term trend&nbsp;of the S&amp;P 500. For the purposes of this model, short term is defined as between five and 15 trading days.

	Next is the&nbsp;intermediate-term trend&nbsp;of the market. Here the focus is primarily on the market relative to its 10-week weighted moving average (which is moved forward two periods). And finally, a&nbsp;cycle composite is examined, which is combination of the one-year seasonal, four-year presidential and ten-year decennial cycles.

	Currently, the short-term trend rating is moderately positive, as the S&amp;P is above its short-term moving averages, which themselves are also moving higher at this time. See the first chart in this report if there are any doubts about this rating.

	The rating of the intermediate-term trend is positive. A quick peek of the S&amp;P 500 weekly chart versus its 10-week moving average should confirm this rating.

	S&amp;P 500 Weekly&nbsp;

	<img alt="spx_weekly_5-26-14.png" height="500" src="/files/images/2014/May/27/spx_weekly_5-26-14.png" width="625" />

	And finally, the cycle composite suggests that stocks should move higher next week. So the rating for the cycle composite is positive.

	When assigning a score of +1 for positive readings, 0 for neutral readings and -1 for negative readings, the overall rating for the trend components comes in at +3 for the upcoming week.

	The Tape Indicators

	The weekly environment model incorporates three &quot;tape&quot; indicators. These are the indicators that reveal the internal health of the market and helps to determine the &quot;oomph&quot; behind a move in either direction. The tape indicators include a&nbsp;breadth-confirmation system, a review of the&nbsp;supply/demand volume and a model that rates the&nbsp;technical health of more than 100 S&amp;P industry groups.

	Currently the tape indicators remain fairly strong. The breadth-confirmation system is positive as both the trend of the market and of the stock-only advance/decline line are above their appropriate smoothings.

	Next, the supply/demand volume relationship indicator is neutral at this time. Although demand volume remains well above supply at this stage, the trend of demand volume is down.

	And finally, the model that rates the technical health of more than 100 industry groups is moderately positive at this time. So, while these indicators are all intermediate-term or longer in nature, the group as a whole is positive.

	The bottom line is that both the trend and tape components of the overall environment model are currently positive - albeit not strongly so.

	Positions in stocks mentioned: SPY

Does The S&P Have Anywhere To Move?

In a <a href="http://stateofthemarkets.com/report/41667/">recent missive</a>, it was noted that momentum meltdowns don't necessarily lead to serious declines in the blue-chip indices.

	The article took a look back at history and found that there have been times (five to be exact) where the Dow and S&amp;P weren't dragged down when the music stopped in the mo-mo names.

	In fact, there have even been times where the S&amp;P moved higher while the momentum meltdown was occurring. However, the key takeaway from the look at past mo-mo meltdowns was that the damage in the high fliers often leads to a deterioration in investor sentiment, which, historically, has led to longer periods of "sloppy" or corrective action.

	Related: <a href="http://www.benzinga.com/general/education/14/05/4559239/cheer-up-a-portfolio-pep-talk-for-investors">Cheer Up! A Portfolio Pep Talk For Investors</a>

	Therefore, the primary question of the day is whether or not the S&amp;P 500 and the DJIA will be able to ignore the severe corrective action that has taken place in the biotech, internet and social media names. 

	Will the broad market just ignore the carnage in the micro caps and march merrily higher? Or will the sloppy action cause investors to lose confidence and eventually head for the exits en masse?

	So Far So Good, Right?

	The S&amp;P 500 closed Thursday about 5 points (or 0.26 percent) from the recent all-time high set on May 13th. As such, the bulls argue that the meaningful correction that almost everyone on the planet has been looking for, doesn't appear to be happening.

	If the market hasn't tanked during the much ballyhooed "Sell in May" period this year, well, the thinking is that maybe there won't be a correction after all in the near-term.

	However, the key to the bull case would seem to be the momentum names. IF the worst of the selloff is behind the market and IF the mo-mo and microcap names can stabilize, THEN maybe, just maybe, stocks can head higher from here.

	Related: <a href="http://www.benzinga.com/general/education/14/05/4555086/keep-your-portfolio-safe-from-traps-tracking-the-hidden-bear-markets">Keep Your Portfolio Safe From Traps: Tracking The Hidden Bear Markets</a>

	However, if the corrective phase in the areas that have been hit hard continues and/or intensifies, then history shows stocks may stay sloppy for a while longer -- and that investors may need to think about taking defensive action.

	Here is a look at some charts to see if there are any signs of stabilization happening.

	S&amp;P 500 Daily

	<img alt="spx_daily_5-22-14.png" src="/files/images/2014/May/27/spx_daily_5-22-14.png" />

	While 2014 has been no picnic for traders, anyone employing a buy and hold approach may be wondering what all the fuss is about. The bottom line on the S&amp;P is simple: It looks like a traditional consolidation pattern.

	However, if one takes a look at the S&amp;P on a longer-term basis, the story is even better.

	S&amp;P 500 Weekly

	<img alt="spx_weekly_5-22-14.png" height="500" src="/files/images/2014/May/27/spx_weekly_5-22-14.png" width="625" />

	In short, investors looking at the S&amp;P 500 on a weekly basis probably didn't even know there was any sort of "meltdown" happening.

	But anyone invested in small-cap and micro-cap stocks knows better.

	iShares Micro-Cap ETF (IWC)

	<img alt="iwc_daily_5-22-14.png" height="461" src="/files/images/2014/May/27/iwc_daily_5-22-14.png" width="625" />

	Although the Dow and S&amp;P are within a whisker of all-time highs, the charts of these small companies are clearly hurting. And the iShares Micro-Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>) remains in a textbook downtrend.

	The good news is that other areas of the mo-mo universe are starting to show some signs of improvement - such as social media.

	Global X Social Media ETF (NASDAQ: <a class="ticker" href="/stock/socl#NASDAQ">SOCL</a>)

	<img alt="socl_dailly_5-22-14.png" height="461" src="/files/images/2014/May/27/socl_dailly_5-22-14.png" width="625" />

	The SOCL ETF appears to have broken the downtrend line that has been intact since the beginning of March. The question of course, is if this area can avoid a relapse.

	A similar picture can be seen in the First Trust Internet ETF (NYSE: <a class="ticker" href="/stock/fdn#NYSE">FDN</a>). The bulls will argue that the downtrend has been broken and that a new uptrend could be forming now. Thus, this is a critical juncture on the FDN chart.

	First Trust Internet ETF 

	<img alt="fdn_dailly_5-22-14.png" height="461" src="/files/images/2014/May/27/fdn_dailly_5-22-14.png" width="625" />

	However, there is more good news in the next couple charts. First, is the XBI - the SPDR Biotech ETF (NYSE: <a class="ticker" href="/stock/xbi#NYSE">XBI</a>). Although the biotechs are not trending higher at this time, they are also NOT trending lower.

	SPDR Biotech ETF 

	<img alt="xbi_dailly_5-22-14.png" height="461" src="/files/images/2014/May/27/xbi_dailly_5-22-14.png" width="625" />

	The bottom line is the biotechs, which have been a critical sector in the mo-mo meltdown, appear to be basing at the present time.

	Let's look at one more chart to see if there are any signs of life - the NASDAQ.

	NASDAQ Composite Daily

	<img alt="nas_daily_5-22-14.png" height="461" src="/files/images/2014/May/27/nas_daily_5-22-14.png" width="625" />

	The bulls were pretty excited about Thursday's action on the NASDAQ as they argued that the Composite was possibly breaking out to the upside. However, the bears could be heard giggling in the background, so the jury appears to still be out on this score. Investors should continue to watch the action of the NASDAQ and the IWC very closely.

	Related: <a href="http://www.benzinga.com/general/education/14/05/4550371/how-to-climb-the-markets-wall-of-worry-safely">How To Climb The Market's 'Wall Of Worry' Safely</a>

	The key here is these beaten-down areas don't need to rebound for the broad market to survive. No, these sectors need to simply stabilize. Remember, the blue chip indices CAN ignore a mo-mo meltdown for a while. So, if the decline ends quickly and these areas stop going down, one could argue that the market has seen the worst of this corrective phase.

	Positions in stocks mentioned: SPY

First Trust Dow Jones Internet Index Fund

SOCL

Can The Bull Market Survive A Momentum Meltdown?

ETF Outlook for Tuesday, February 25, 2014

	iShares Russell Microcap Index ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>)

	The large-cap stocks broke out today with the S&amp;P 500 touching its highest level ever. However, for the year the index remains lower by one point. The microcap stocks on the other hand continue to outperform the large-cap stocks again this year as measured by IWC.

	The ETF  is up 3.4 percent in 2014 and is closing in on the all-time high set in January. The ETF is now overbought and could see some healthy selling in the coming days before attempting a breakout, but the trend remains very bullish.

	SPDR Materials ETF (NYSE: <a class="ticker" href="/stock/xlb#NYSE">XLB</a>)

	The ETF traded twp pennies above the all-time high from 2008 on Friday before closing in the red. Yesterday the ETF came with four cents of the all-time high again before closing near the low of the day. Add in an RSI that is overbought and moving lower and the odds are a pullback is in store for the ETF.

	See also: <a href="http://www.benzinga.com/markets/emerging-markets/14/02/4340166/premarket-primer-tuesday-february-25-mt-gox-disappears-bitcoi">#PreMarket Primer for February 25 - Mt. Gox Disappears, Bitcoin Down 20%</a>

	Another red flag is the volume, which was more than double yesterday as the selling picked up near the end of the trading day. Support on XLB is at the $45 area in the event the chart is correct and a pullback is imminent.

	United States Gasoline ETF (NYSE: <a class="ticker" href="/stock/uga#NYSE">UGA</a>)

	The average U.S. price for a gallon of gasoline has risen for 17 straight days, the longest streak since May. The increase has added 15 cents to the price per gallon, however the price still remains 36 cents below the high of last year.

	UGA closed at a multi-month high last week and has been consolidating at the area for the last couple of days. If the ETF can hold above $60/share it could push the price back to the next resistance level of $64.

	Global X FTSE Nordic Region ETF (NYSE: <a class="ticker" href="/stock/gxf#NYSE">GXF</a>)

	The Nordic countries closed out a strong showing at the Winter Olympics and the countries continued to celebrate Monday as GXF rallied two percent to a new all-time high. The breakout on Monday was significant because the ETF has struggled to break above $24.75 for the last few months before the big move.

	The one issue with GXF is that it only traded 2,800 shares on Monday, which could make it difficult for investors to initiate large positions. The ETF is heavily weighted towards Sweden (53 percent) and also has exposure to Denmark, Norway, and Finland.

Commodities

Pre-Market Outlook

ETF Outlook For Tuesday, February 25, 2014 (IWC, XLB, UGA, GXF)

When it comes to investing, bigger is not always better. 

The large cap stocks are often the names that everyone knows and loves, however they may not be the best investment option when the goal is to make money.

	Large cap stocks are typically perceived as safer and more stable than the small cap stocks because they have been profitable for many years and have steady revenue. On the other hand, as a company matures they tend to get so big that future growth expectations will begin to diminish. That is evident in such companies as Microsoft (NASDAQ: <a class="ticker" href="/stock/msft#NASDAQ">MSFT</a>); they are too big to get out of their own way and the market becomes saturated with their products unless they are able to reinvent their business model.

	Related: <a href="http://www.benzinga.com/etfs/sector-etfs/13/11/4088467/new-financial-etf-focusing-on-covered-calls-hfin">New Financial ETF Focusing on Covered Calls</a>

	The small cap stocks are not necessarily startups, but they a common thread that most have is above average growth. When an investor buys a stock they are investing in the future earnings of the company and high growth can lead to above average stock gains.

	There are a large number of ETFs that invest in small cap stocks in a variety of approaches. Investors must make sure to do their due diligence to find which small cap ETF meets the desired goals that are attempting to be achieved.

	iShares Core S&amp;P Small Cap ETF (NYSE: <a class="ticker" href="/stock/ijr#NYSE">IJR</a>)

	The ETF is a highly diversified basket of 602 stocks that focuses on the S&amp;P Small Cap 600 Index. With the top holding only making up 0.6 percent of the portfolio and the top ten holdings only accounting for 5.4 percent of the allocation, the ETF is truly diversified. The financials, information technology, and consumer discretionary stocks are the most heavily weighted sectors.

	Year-to-date the ETF is up 34.3 percent compared to a gain of 25.6 percent for the Vanguard Mega Cap 300 Index ETF (NYSE: <a class="ticker" href="/stock/mgc#NYSE">MGC</a>). The annual expense ratio is 0.17 percent and the dividend yield is 1.1 percent.

	iShares Micro Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>)

	Moving down another notch on the market capitalization ladder is the micro cap stocks, which are even smaller in size. IWC takes an extremely diverse approach to the asset class with over 1350 stocks and a top ten that only accounts for 3.2 percent of the ETF. The financial, health care, and technology sectors are the three largest sectors represented.

	Related: <a href="http://www.benzinga.com/etfs/sector-etfs/13/11/4088124/best-retail-etf-for-holiday-season-xrt-pmr-rth-amzn-wmt">Best Retail ETF for Holiday Season</a>

	The performance of IWC is nearly identical to IJR in 2013 with a gain of 34.2 percent. The expense ratio is higher due to the exposure to stocks that are not as liquid and the nature of the asset class. The annual expense ratio is 0.74 percent. The dividend yield is 0.9 percent.

	In most core portfolio allocations, but large cap and small cap stocks will be represented. However, it is integral not to over look the growth potential of small cap stocks when investing for the long-term.

MSFT

The Smaller the Better In ETFs (IJR, IWC, MGC)

In the battle between David and Goliath, we all know who came out victorious. When it comes to the stock market the mega-cap stocks play the role of Goliath and the micro-caps are David.

	Investors view the mega-cap stocks as stable and less risky than the other asset classes. Micro-caps are considered risky and volatile; the lottery tickets of the investment world. The questions are whether the assumptions are correct and which asset class is better for your portfolio?

	iShares Micro-Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>)

	The ETF is made up of over 1350 stocks that come from a variety of sectors that include financials, health care, and technology. After gaining 36.5 percent this year, the ETF is trading at a new all-time high. Since the bottom in 2009 the ETF is up an astonishing 231 percent. One of the benefits investors achieve with IWC is diversification throughout the entire asset class. The largest holding, Red Robin Gourmet Burgers (NASDAQ: <a class="ticker" href="/stock/rrgb#NASDAQ">RRGB</a>), only makes up 0.34 percent of the allocation, eliminating any stock-specific risk.

	The statement that smaller capitalization stocks will be more volatile is proven to be a myth with IWC. The chart of IWC is evidence that it has not had the wild swings that some of its peers have. The largest pullback the ETF experienced this year was 5 percent during the month of August, lower than that of the S&amp;P 500.

	Vanguard Mega-Cap 300 Index ETF (NYSE: <a class="ticker" href="/stock/mgc#NYSE">MGC</a>)

	Also hitting a new high is a group of the “who’s who” in the U.S. stock market. The basket of 292 stocks is led by household names Apple (NASDAQ: <a class="ticker" href="/stock/aapl#NASDAQ">AAPL</a>) and Exxon Mobil Corp (NYSE: <a class="ticker" href="/stock/xom#NYSE">XOM</a>). The median market cap of the stocks that make up MGC is $77.5 billion. Compare that with the $205 million median market cap for the stocks that make up IWC.

	The top ten stocks make up approximately 20 percent of the ETF, which is acceptable and does not suggest it is overweight any one stock. Similar to IWC, the largest sectors are financials and technology.

	From its low in 2009, the ETF has gained 157 percent and is up 24 percent in 2013. Both numbers are very impressive, but the pale in comparison to the returns that IWC has offered.

	The answer the question about which ETF is better for an investor’s portfolio in the future is difficult to answer because both offer exposure to such unique portions of the market. Looking back at history and the current performance of the two ETFs, it appears a combination of the two in a portfolio would be the best option for the average investor.

RRGB

Mega-Cap vs. Micro-Cap ETFs (MGC, IWC, RRGB, AAPL)

On the back of the news out of Washington last night the S&amp;P 500 has continued its rally and has traded above the all-time closing high of 1725, which it recorded last month. The confirmation of the breakout would be a close above the previous high when the bell rings at 4pm.

	As the S&amp;P 500 prepares to it yet a new record level there is a growing number of ETFs that have already reached new heights. In a strong bull market it is important to ride the momentum of the ETFs that are showing relative strength. The ETFs leading the market higher will likely continue that trend and should be where investors look to invest their money.

	Here is a short list of ETFs already trading at new highs.

	iShares Russell Microcap Index ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>)

	The basket of over 1350 stocks continues to outperform its larger peers with a gain of 34 percent this year. It should not be a surprise that the smaller capitalization stocks are doing well in a bull market as investors are willing to take on above-average risk.

	Not only is the ETF hitting new highs prior to the S&amp;P 500, it has also held up much better during all pullbacks in 2013. This is yet another signal of relative strength.

	First Trust ISE Natural Gas Index ETF (NYSE: <a class="ticker" href="/stock/fcg#NYSE">FCG</a>)

	The ETF has been on a tear recently and is up 29 percent since the beginning of the year. A major reason for the outperformance has been the expansion of the U.S. as a major player in oil and natural gas via fracking. The ETF hit a new 52-week high in September and continued higher right through the debt ceiling debate.

	The future of energy begins with the natural gas companies that are able extract both natural gas and oil from the shale in the U.S. Other than a short-term, overbought pullback, FCG looks like it will continue to outperform.

	SPDR Euro STOXX 50 ETF (NYSE: <a class="ticker" href="/stock/fez#NYSE">FEZ</a>)

	The three countries that make up the majority of the ETF are France, Germany, and Spain. All three are hitting new highs and therefore there is no surprise FEZ is joining them on the list. The ETF was able to breakout to the best level in over two years last week and the rally has continued.

	The ETF is now up 16 percent on the year and has plenty of room to run to get back to the pre-crisis level. A short-term pullback may be around the corner for the European stocks after a big rally the last two months. However, that is not necessarily a bad thing because it can be viewed as a buying opportunity.

	As an investor and human being it is naturally more comfortable to buy when an ETF is up and hitting highs. When it comes to making money the best strategy is to buy on weakness. Look for pullbacks in ETFs hitting highs and do not fear buying when there is red on the screen.

Emerging Market ETFs

First Trust ISE-Revere Natural Gas Index Fund

ETFs Beating the Market to New Highs (IWC, FEZ, FCG)

On Thursday, 15 exchange-traded products hit new all-time highs.

	The number may have been higher, but the parameters of the screen that was run to turn up that number included confining the search to ETFs that were at least six months old with average daily volume of at least 10,000 shares.

	Excluding the two volatility ETNs that popped up in the search, 13 traditional long ETFs made the cut Thursday, though the list is probably far smaller Friday as U.S. markets are retreating. What makes the list of ETFs that hit new all-time highs Thursday interesting is that there <a href="http://www.benzinga.com/markets/bonds/13/06/3713815/common-themes-among-q2s-best-etfs">are some common themes</a> that link a few of these funds.

	Consider the following:

	The U.S. Still Rocks 
	One theme that has gotten a lot of attention this year, and with good reason, is the dominant performance turned in by U.S. stocks compared to other developed markets. With the exception <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/07/3767730/small-dip-in-japan-etfs-could-be-pre-election-opportunity">of Japan ETFs</a>, few markets outside of the U.S. have provided ETF investors with many thrills.

	And there is a reasonable chance few investors would guess which non-U.S. ETF made Thursday's list of ETFs making new all-time highs. It was the iShares MSCI Ireland Capped ETF (NYSE: <a class="ticker" href="/stock/eirl#NYSE">EIRL</a>). EIRL, the lone Ireland ETF, was up 21.5 percent year-to-date heading into Friday compared to 15.7 percent of the SPDR S&amp;P 500 (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>).

	Related: <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/07/3771905/stealth-rallies-for-these-emerging-markets-etfs">Stealth Rallies For These Emerging Markets ETFs</a>.

	Facebook Friend-ed a Slew of ETFs 
	Assuming for a minute that most investors have by now heard that Thursday was an excellent day to be long Facebook (NASDAQ: <a class="ticker" href="/stock/fb#NASDAQ">FB</a>), it should not come as a surprise <a href="http://www.benzinga.com/news/earnings/13/07/3784572/facebook-not-the-only-reason-to-buy-internet-etfs">that plenty of ETFs benefited from the surge in that stock</a>.

	In fact, five of the ETFs that hit new all-time highs Thursday hold shares of Facebook. The list, in no particular order: The First Trust Dow Jones Internet Index Fund (NYSE: <a class="ticker" href="/stock/fdn#NYSE">FDN</a>), First Trust US IPO Index Fund (NYSE: <a class="ticker" href="/stock/fpx#NYSE">FPX</a>), Global X Social Media Index ETF (NASDAQ: <a class="ticker" href="/stock/socl#NASDAQ">SOCL</a>), PowerShares NASDAQ Internet (NASDAQ: <a class="ticker" href="/stock/pnqi#NASDAQ">PNQI</a>) and, if you can believe it, the First Trust ISE Cloud Computing Index Fund (NASDAQ: <a class="ticker" href="/stock/skyy#NASDAQ">SKYY</a>).

	Tiny Stocks Show Their Might 
	Small-caps have contributed in a big way to the broader market's upside, but what about micro-caps? Micro-cap ETFs are by no means, but they are a decent option for investors that do not want to engage in stock-picking among sub-$300 million market cap equities. Two micro-cap ETFs, the iShares Micro-Cap ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>) and the First Trust Dow Jones Select MicroCap Index Fund (NYSE: <a class="ticker" href="/stock/fdm#NYSE">FDM</a>), made new highs yesterday.

	Not to be too picky, but it should be noted that since micro-caps have performed well this year, many of the stocks found in those ETFs now have market caps that put them well into small-cap territory.

	Speaking of Small 
	Investors that take a look at the top-10 non-leveraged ETFs on a year-to-date basis will find that only a few of those funds would meet the definition of a "big ETF." If size is a deciding factor in ETF selection for some, than those folks probably do not want to be involved with most of the funds that hit new highs on Thursday.

	IWC has over $752 million in assets under management and FDN is the only member of the group with over $1 billion in AUM. Proving that the idea of an ETF needing<a href="http://www.benzinga.com/trading-ideas/long-ideas/13/07/3728299/two-sub-100m-etfs-that-have-outperformed-larger-rivals">$100 million in assets</a> to be a strong performer is utterly absurd, here is a sampling of the ETFs with less than $100 million in AUM that made new all time highs on Thursday: The First Trust NASDAQ Global Auto Index Fund (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>), EIRL, FPX, PNQI, and SOCL.

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

Intraday Update

Tech

CARZ

iShares MSCI Ireland Capped Investable Market Index Fund

EIRL

First Trust/First Trust Dow Jones Select MicroCap Index Fund

PNQI

SKYY

Interesting Themes Among New ETFs Hitting All-Time Highs

Last night, Federal Reserve Chairman Ben Bernanke spoke to a room of economists - and his tone was much different than it was just a few weeks ago. In late June, Bernanke alluded to the fact that the Fed will begin “tapering” its $85 billion monthly asset purchases in the near future.

	Now, the taper date appears to be further into the future than the market had originally predicted. Here is a direct quote from Bernanke, saying, “Both the employment side and the inflation side are saying that we need to be more accommodating.” A literal interpretation of the quote tells there will be more quantitative easing (QE) in the months ahead and that the path of least resistance for stocks is higher.

	The $85 billion in monthly purchases by the Fed has helped artificially keep interest rates low and boost stocks. Now that this trend will continue, we need to continue to look at investments that have done well the last couple of years. There are three areas I am focusing on with the continuation of QE.

	Stocks are the most attractive asset class with interest rates well below historical averages, good valuations, strong charts and the Fed on their side. Within the asset class, leaning towards the aggressive stocks leads to the iShares Russell Microcap Index ETF (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>). The ETF is a basket of over 1350 micro cap stocks that trades with a slightly higher beta (volatility) of 1.19 versus the S&amp;P 500.

	The one issue with IWC is that it is trading at an all-time high and therefore waiting for a pullback is the best strategy. Patience may pay off in this situation.

	Income-producing ETFs are another area that should continue the trend of moving higher with the cooperation of the Fed. As the Fed buys more bonds, it keeps interest rates low, which in turn makes the yields of dividend-paying stocks even more attractive. The iShares High Dividend Equity ETF (NYSE: <a class="ticker" href="/stock/hdv#NYSE">HDV</a>) is a basket of 75 mainly large-cap stocks that pays a 3.6 percent dividend yield.

	The ETF over five percent from its highs during the sell-off, but has since rebounded and is catching a bid after investors realized the Fed was not done pumping up the economy. The combination of high income and a basket of large-cap, stable companies make HDV an attractive opportunity.

	Finally, there are bonds themselves that should benefit from the Fed keeping interest rates low. The price of a bond and interest rates have an inverse relationship. As interest rates increase the value of bonds decreases and vice-versa. With that being said, investing in US government bonds is too risky.

	The play here is with corporate bonds that have below investment grade ratings. The ETF is the SPDR High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/jnk#NYSE">JNK</a>), which is a basket of over 600 corporate junk bonds that is yielding 6.1%. Even when interest rates begin to rise again, JNK should be able to outperform treasuries and when stocks are increasing, junk bonds will often follow the market trend.

	There are of course many other ETF options available to play for a prolonged Fed involvement in the economy. However, the three above offer a diverse starting point that should fit most investor’s long-term goals.

Federal Reserve

Three ETFs To Own While Fed Continues QE

Mutual fund giant Fidelity and BlackRock's (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) iShares unit, the world's largest ETF sponsor, announced today that Fidelity will more than double the amount of iShares ETFs it offers to its clients on a commission-free basis to 65 funds.

The two firms have a commission-free ETF partnership that dates back to early 2010 when the Fidelity announced it would offer 26 iShares ETFs commission-free. That number was raised to 30 iShares <a href="http://www.benzinga.com/11/02/867736/fidelity-increases-commission-free-etfs-to-31">in early 2011</a>.

The full, expansive list of iShares ETFs available on a commission-free basis to Fidelity clients <a href="https://www.fidelity.com/etfs/ishares-view-all">can be seen here</a>. Among the 65 iShares ETFs Fidelity clients can trade (sans commissions) are popular bond, broad market and emerging markets funds, as well more targeted offerings.

The list of iShares ETFs in the Fidelity commission-free stable include the iShares Core MSCI Emerging Markets ETF (NYSE: <a class="ticker" href="/stock/iemg#NYSE">IEMG</a>), the iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>), the iShares Barclays TIPS Bond Fund (NYSE: <a class="ticker" href="/stock/tip#NYSE">TIP</a>), the iShares Core S&amp;P 500 ETF (NYSE: <a class="ticker" href="/stock/ivv#NYSE">IVV</a>), the iShares Core Total U.S. Bond Market ETF (NYSE: <a class="ticker" href="/stock/agg#NYSE">AGG</a>), the iShares Emerging Markets Local Currency Bond Fund (NYSE: <a class="ticker" href="/stock/lemb#NYSE">LEMB</a>), the iShares MSCI China Index Fund (NYSE: <a class="ticker" href="/stock/mchi#NYSE">MCHI</a>), the iShares Russell Micro-Cap Index Fund (NYSE: <a class="ticker" href="/stock/iwc#NYSE">IWC</a>), the iShares MSCI Japan Index Fund (NYSE: <a class="ticker" href="/stock/ewj#NYSE">EWJ</a>), the iShares iBoxx $ High Yield Corporate Bond Fund (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>) and the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE: <a class="ticker" href="/stock/lqd#NYSE">LQD</a>).

Fidelity, which has filed plans with the Securities and Exchange Commission to offer its own ETFs, said expanding its partnership with iShares <a href="http://finance.yahoo.com/news/fidelity-expands-etf-partnership-blackrock-133403780.html">is not a reaction to recent news from</a> Charles Schwab (NYSE: <a class="ticker" href="/stock/schw#NYSE">SCHW</a>).

Last month, Schwab, the largest discount broker, unveiled its Schwab ETF OneSource Platform that allows clients to trade <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/02/3314763/schwab-unveils-massive-additions-to-commission-free-etf-lineu">105 ETFs from various issuers commission-free</a>. In addition to its own ETFs, Schwab offers State Street Global Advisors, PowerShares and Guggenheim funds, among others, commission-free.

TD Ameritrade (NASDAQ: <a class="ticker" href="/stock/amtd#NASDAQ">AMTD</a>) offers over 100 ETFs commission-free as well, <a href="http://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp">including some iShares funds</a>. E*Trade (NASDAQ: <a class="ticker" href="/stock/etfc#NASDAQ">ETFC</a>) and Vanguard are among the other firms that offer commission-free ETF trading to their clients.

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.