While most stocks - and broad indices - were just mediocre last week, there were a few small cap industries with an unusually strong performance from their stocks. In some cases it may have been a coincidence or fluke. In other cases though, there may be more to the story. Here they are:

(Note that energy stocks have been removed, as they are largely moving in tandem with oil prices right now. Also, we’ve specifically focused on small cap stocks; you may not see quite the same leadership from the same large cap industry.)

See any interesting themes? Retail - in one form or another - appeared on the leader list in a couple of different ways. We also saw containers and packaging stocks lead the pack. In both cases there’s some overlap, but also in both cases each index has unique constituents. Translation: You may want to get specific here if you go drilling for underlying stock picks.

On a more philosophical note, how obscure can you get? Containers? Wow. As for apparel and specialty retailers, they’re a little more recognizable.

Either way, the opportunity here is finding a pick nobody else has really thought of yet…or one most people haven’t thought of yet anyway. These industries and their results are probably buried deep in their respective sector, and may not have an evident impact anyone has recognized. As such, you may still be able to find an early entry point (before anybody else does) into a good trend. 

We’ll get you started with a list of small cap specialty retailers. Notice that some of them are tiny, and could present liquidity problems. Still, if it’s an opportunity, then it is what it is. Obviously more due diligence is needed, but stocks that are actually moving may deserve a closer look than others.

Not that we’ve done any homework on ‘em, but Borders (BGP), MarineMax (HZO), Kirkland’s (KIRK), Pier 1 (PIR), and West Marine (WMAR) seem to have the more attractive charts right now.

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Of course, ‘dominate’ can be a relative term. Last week, ‘domination’ mean scraping by with a small gain while the other indices took fairly sizable losses. Over the course of weeks though, yeah, small cap stocks and value stocks (or the combo of both) have been great performers.

It all goes back to our July 3rd mid-year update, which also included some specific forecasts of style and market cap rotation. We were looking for value to topple growth as a market leader, and specifically, we were expecting large cap value to come roaring back while mid cap growth took the biggest hit. We updated the forecast on August 11th. Though nothing significant had changed, small caps were leading the way at the time… which we also turned a little more optimistic about.

So, with two months under our belt, how do things stack up now? More of the same; score one for rotation strategies. Take a look:

It was a value trifecta last week…mid, small, then large caps. Growth was not as strong - each growth/market cap lost a little ground.

But, that was just one week… a tepid one at that. The true trend is more evident with a slightly longer time frame. In this case, we’re more interested in the last month, and the last two months. On our chart, the two ‘winners’ for each time frame are highlighted in green, while the two losers are highlighted in orange.

Small caps anyone? Take your pick of style - growth and value have both been great. Though we don’t want to detract from our original bullish bias for mid cap value, based on the rotation we’ve seen in the meantime, we do indeed favor small caps now as well.

And growth? Well, the numbers don’t lie. Large cap and mid cap growth stocks have lagged, or lost ground, if not both. That was what we were warning you about in early July.

Several of you have asked how to make this rotation forecast actionable in your portfolio. While that’s largely up to you, a good starting point might be to narrow your search to stocks that fit within these groups. You won’t likely see a ‘night and day’ difference. However, if you can squeeze out a few extra percentage points thanks to some group-based help, it’s worth it.

If you’re a little more straight-forward, the next-easiest choice is market cap and style-based ETFs. The Rydex Fund company may have the simplest solution; they offer an exchange-traded fund designed to mirror the six indices we’re basing our analysis on….

• S&P 500 Pure Value (RPV)
• S&P 500 Pure Growth (RPG)
• S&P MidCap 400 Pure Value (RFV)
• S&P MidCap 400 Pure Growth (RFG)
• S&P SmallCap 600 Pure Value (RZV)
• S&P SmallCap Pure Growth (RZG)

If you wanted to add a layer of complexity, you could also utilize the inverse versions of these ETFs….ETFs that move upward when the underlying index moves lower. Obviously those instruments can’t be held forever, but they’re a nice way to keep making gains in a bearish environment. If that’s up your alley, Proshares offers..

• ProShares Short QQQ ETF (PSQ)
• ProShares Short S&P500 ETF (SH)
• ProShares Short MidCap400 ETF (MYY)
• ProShares Short Dow30 ETF (DOG)
• ProShares Short Russell2000 ETF (RWM)
• ProShares Short SmallCap600 ETF (SBB)

We could mention leveraged funds, but we’ll save that for another time. In the meantime, if you would like to cash in on our next style/cap forecast, make sure you’re signed up to receive our e-mail newsletter.

Start receiving FREE e-research on select small and micro cap stocks. Get in-depth research reports, comprehensive coverage, exclusive market commentary and more, just by becoming a MCP subscriber today! Look for the submission form at the top of the right-hand column.