Dip Buyers Get Their Chance

There is blood in the streets...and small caps have taken a good lashing. Stepping up to buy is one thing, but where to hunt? The choices are endless, and could make or break your year from here.

This red-headed money manager might not be getting beat on as hard as the Russell 2000 names, but thinks small-cap strategies are going to remain under pressure…

As Andy Greig pointed out earlier this week, the Russell 2000 (the index I watch most closely) has been ground zero for this week’s market decline. Over the past 5-6 sessions, the index is down over 8%, and now is DOWN for 2007........

Over the years, I haev found that small-caps are especially sensitive to corporate credit spreads. Corporate credit spreads are a good overall measure of risk-taking appetite, and clearly investors are pulling in their horns right now.

Subprime and all the woes in the housing market are partly to blame, but these factors have been pretty well known for quite some time now. Rather, I suspect that the recent flood of private equity deals--and all the attendant deal borrowings-- finally short-circuited the system.

The Russell 2000 (IWM) is certainly entitled to an oversold bounce in here, but I fear that the environment is going to be especially difficult over the next few months, at least..

Ya gotta love the Russell 2000...easy come, easy go..

Vestopia
Market Blog

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