Traders Are Betting on a Small-Cap Rally

Small-cap stocks and ETFs, such as the iShares Russell 2000 ETF (NYSEArca: IWM), were already retreating prior to last week’s equity market slump, but those declines pressured smaller stocks in a big way.

IWM, which tracks the widely followed Russell 2000 Index, dropped more than 6% last week. Some data points indicate aggressive traders are wagering on a small-cap resurgence and they are comfortable doing so with leveraged exchange traded funds. That includes the Direxion Daily Small Cap Bull 3X ETF (NYSEArca: TNA).

TNA looks to deliver triple the daily returns of the Russell 2000 Index. Many traders believed smaller companies were insulated from the overseas turmoil. Furthermore, a stronger U.S. dollar and concerns over weaker global growth are also driving investors toward smaller company stocks that tend to earn most of their money from a still growing domestic economy.

TNA ETF Enthusiasm

Data support the notion that traders are betting small-cap stocks will soon resume their bullish ways. For the 30 days ended Oct. 11, TNA averaged daily inflows of $10.77 million, according to Direxion data. Conversely, traders took profits in TNA’s bearish counterpart, the Direxion Daily Small Cap Bear 3X Shares (NYSEArca: TZA).

TZA attempts to deliver triple the daily inverse performance of the Russell 2000 Index. Over the past month, TZA is averaging daily outflows of $2.77 million, according to issuer data.