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Small caps Stocks are Starting to Face Some Headwinds

Action to take:  

 

  1. Sell-to-close IWM August 18, 2023 $193-$194 Call Spread at market. 
  1. Sell-to-close IWC August 18, 2023 $114/$115 Call Spread at market. 

Good day! 

Looking at the chart for iShares Russell 2000 ETF (IWM) small caps stocks are starting to face some headwinds.  

Here’s what I’m seeing. 

During this earnings season (Q2/2023), for the two days prior to, and the 2 days after, stocks that beat analyst consensus were down 0.5%, but the five-year average of that time period (two days prior to, and the 2 days after) is up 1.0%. That’s interesting. It tells me investors aren’t rewarding earnings-beats in the same manner they have over the last five years. 

On top of that, trouble with the banks is back on the table. That’s significant because many of the smaller banks are small-cap stocks, so any weakness there (small-cap banks) is going to affect the small-cap space as a whole. 

I talked more about both of those items and more, in today’s LAUNCH live call. Click here to see what I had to say

Earlier this week, I recommended Innovative Solutions and Support, Inc. (ISCC), the Exton, Pennsylvania-based provider of flight guidance, autothrottle, and cockpit display systems to commercial and military aviation contractors. We filled that recommendation at $8.00 and it opened today’s session at $8.13, so we were up 1.62% on the position since Monday. 

Next up, let’s check in on our Bigbear.ai Holdings Inc. (BBAI) recommendation. On January 12, 2023, shares of BBAI jumped as much as 352.94% in a single session, and the stock has yet to fill the giant gap up. I like BBAI right here, but we need to be cognizant of that gap, which is why I want us to use a protective stop at $1.42 on our BBAI position. If we get stopped out of BBAI, we’ll go back after the stock at a lower price. But for now, we’re looking good. 

As I write this, shares of iShares Russell 2000 ETF (IWM) are trading below the bottom strike of our IWM August 18, 2023 $193-$194 Call Spread. At this point, I want us to exit the position, along with our IWC August 18, 2023 $114/$115 Call Spread recommendation. 

Action to take:  

  • Sell-to-close IWM August 18, 2023 $193-$194 Call Spread at market. 
  • Sell-to-close IWC August 18, 2023 $114/$115 Call Spread at market. 

Just to summarize, here’s a quick review of instructions for you to follow along with. Today, I’m updating instructions on the following recommendations:  Bigbear.ai Holdings Inc. (BBAI) and Innovative Solutions and Support, Inc. (ISCC). 

Stocks: 

  • Bigbear.ai Holdings Inc. (BBAI): Use a protective stop at $1.42. 
  • Ambarella Inc. (AMBA): 50% position 
  • Innovative Solutions and Support, Inc. (ISCC): Use a protective stop at $6.10. 

Limit Orders: 

  • Buy-to-open half of your intended Evolv Technologies Holdings Inc. (EVLV) stake at $5.50. Plan on buying the other half at $4.00. 
  • Plan on buying the second half of Ambarella Inc. (AMBA) at $70 per share. 

Warm wishes for health, wealth, and happiness, 

Shah