Small cap strength is showing in the new year as the global economy continues the healing process. It’s feeding into strength for the Invesco S&P SmallCap Materials ETF (PSCM), which is already up 10% year-to-date.
PSCM seeks to track the investment results of the S&P SmallCap 600® Capped Materials Index. The companies found within the index constitute companies that are principally engaged in the business of producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals.
“After the worst start in five years, Wall Street rebounded strongly in the first week of 2021 with small caps leading the way higher,” a Yahoo! Finance article said. “This is especially true as the Russell 2000 Index is up 5.9%, outperforming the gains of 4.8% for the S&P 400 Mid Cap Index and 1.8% for the S&P 500 Index.”
“Although worries over a prolonged coronavirus crisis made investors jittery, a combination of factors including vaccine rollout and super easy policies continued to charge the bulls,” the article added further. “The wider reach of coronavirus vaccine is expected to the end of the pandemic, resulting in higher demand for all types of products and services in the economy.”
One of those sectors ready to rebound is the materials sector.
“This fund offers exposure to companies that are principally engaged in producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals,” the article added, noting that from “an industrial look, chemicals takes the largest share at 50.1% followed by metals & mining (36.1%), and paper & forest products (7.5%). The fund has AUM of $13.9 million and trades in volume of 3,000 shares a day on average. It charges 29 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Small-Cap Sector ETFs Beating the Russell 2000).”
Within the past 3 months, PSCM has risen almost 40%.
PSCM Building Off of Recent Momentum
Looking at its 3-month chart, we can already see that PSCM is above its 50-day moving average by 19%. A heavy spike in volume on January 4 also kicked off the new year’s first trading session.
A buying opportunity could be presenting itself as the fund is above overbought territory in its relative strength index (RSI) indicator. The momentum is further confirmed when applying a moving average convergence divergence (MACD) filter, which shows that the exponential moving average (EMA) is above the signal line.
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