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Why One Trader Says Weakness In Stocks Like These 4 Is A Buying Opportunity

Why One Trader Says Weakness In Stocks Like These 4 Is A Buying Opportunity

Small caps have come under pressure lately and that’s giving investors a good buying opportunity for stocks like these 4 names.

Small caps’ run higher has hit the brakes in recent weeks.

Over the last month, the Russell 2000 Index dropped more than 4% after hitting a new all-time high on March 15. And BK Asset Management’s Boris Schlossberg said this week that inflation fears may be the culprit that’s keeping small caps down.

Inflation “hangs like the sward of Damocles over the small caps right now,” Schlossberg, the firm’s managing director of FX strategy, said. “Producer prices both from the production squeeze and just from the input costs could really have a material impact because I don’t think small caps have the pricing power right now in the marketplace to really pass that on to the consumer, and if they don’t, their margins are likely to be squeezed.”

Oppenheimer’s Ari Wald disagrees and argues instead that the weakness in small caps is a buying opportunity.

“The Russell 2000 is pausing in an uptrend, so we do ultimately expect a new high above 2,360,” Wald, Oppenheimer’s head of technical analysis, said. “In terms of support levels, it’s currently oscillating around its 50-day average at 2,235, followed by its 100-day average at 2,105.”

Source: TradingView.

But Wald has his eye on one area of the small cap space in particular.

“Now that small caps have underperformed, that’s where our focus shifts, and I think within the small-cap space the standout here is small cap-growth,” Wald continued.

Looking at the IWO Russell 2000 Growth iShares ETF, the technical analyst says a higher low in its daily relative strength index is a bullish development that suggests “selling intensity is abating.”

The IWO ETF is down just over 11% since its February 10 high, and its top holdings have come under pressure as well, giving investors a good entry point. The ETF’s top holdings include Plug Power (NASDAQ: PLUG), Caesars Entertainment (NASDAQ: CZR), Churchill Downs (NASDAQ: CHDN), and SunRun (NASDAQ: RUN).

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