Watch These Two Areas In Small Caps

Small caps had quite the day on Friday, surging more than 4%.

It was only the second time in the last three years that the S&P 500 Small Cap Index ($SML) had gained more than 4% in a single trading day. When I review leadership in any area, I like to visualize it on the RRG chart (Relative Rotation Graph). For small caps, I also like to use the Principal U.S. Small Cap Index and Sector ETFs. I use the PSC as the benchmark index ETF and all of the PSC sector ETFs as rotation around that benchmark. Check out the small cap sector ETFs - I think you'll quickly see the leader:

Enter Principal U.S. Small Cap Index (PSC):

The information technology area (PSCT) is the undisputed leader and the Top 10 holdings right now are SPSC, RMBS, ONTO, ACLS, BMI, NSIT, DIOD, FN, AEIS, AND SANM. But given the big day in industrials on Friday and the fact that the small cap industrials ETF (PSCI) is still in positive territory on the relative strength axis, it's very possible, perhaps even likely, that we'll see this ETF turn straight back up into the leading quadrant. The Top 10 holdings in the PSCI right now are FIX, AIT, AJRD, AAON, MLI, FELE, JBT, ACA, HI, and FSS. Several of these component stocks look really good technically. Because these 10 holdings make up more than 25% of the PSCI, I really like the chances of the PSCI to perform extremely well this week.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.