Editor's Note: Today, I want to share with you an article I wrote about a month and a half ago. I truly felt we were on the verge of something big in the small-cap world, and sure enough, we are. I'll explain after you read the article… Enjoy… Small-Caps… Leading the Next Rally
By Jim Nelson
August 15, 2008
Many feel that the stock market is only truly understood by the fat cats on Wall Street. The intricacies of daily stock movements confuse outsiders. But in reality, that's nothing compared to what it was like a century ago.
The old days of trading stocks was a wild-west show. Finding out how a stock has done over the past few years was one of the hardest things about it. There was virtually no record keeping. Even worse than that, no one had any clue what the market, itself, was doing. That's exactly what Charles Dow came to Wall Street to fix. Dow was a journalist with hardly any investing background. As an outsider himself, Dow came up with a system to let anyone understand what was actually happening on Wall Street. As you can guess, that system became what we now know as the Dow Jones Industrial Average. Starting in 1896, the Dow became the first index to let outsiders understand what was happening in the stock market. You could pick up your newspaper and see whether the Dow was up or down. That may not sound like a lot. But, this index brought a lot of people into the market. A century later, we find ourselves with hundreds of indexes that cover everything from Australian stocks to U.S. gold mining companies. But there is one that is more important to us small-cap investors than any other…the Russell 2000. Back in 1984, Russell Investments launched the very first float-adjusted indexes: the Russell 1000, which includes the largest 1,000 companies in the U.S. and the Russell 2000, which encompasses the next 2,000 smaller ones. It's impossible to be a true small-cap investor without religiously following what the Russell 2000 is up to. The next logical question would be, "why would a small-cap investor need an index in the first place?" The answer is simple; the small-cap market is the most cyclical of any sector on Wall Street. Let me explain… For years, small-caps were thought to be quite independent of economic conditions, investor sentiment, and any other macroeconomic element of investing. But with the introduction of the Russell 2000, it became clear that that's not the case. As you can tell from this chart, the Russell moves similar, but not directly in-line with the Dow: 
Check out the market recovery in 2003. The Russell spiked up much faster and much higher than the Dow. That's what small-caps do. If you can time when those spikes are about to occur, you can make big money. That's the real point of staring at indexes day in and day out. Why tell you about this today? Because we are on the verge of the next spike, and Wall Street doesn't even see it yet. You see, when we go through a severe correction like we have been going through the past nine months, the Russell is hit the hardest. But, by the time the Dow bottoms out, the Russell is ready to make a huge rally. You can see it post-correction 2002 above. And you will see it very soon in the post-correction 2008: 
This chart shows the Russell leveling out ready for a rally. When the Dow finally finds its support, the Russell and almost every small-cap out there will surely lead the comeback rally. Simply put… Now is the best time in years to buy small-caps. So go out there and do it… Sincerely,
Jim Nelson Editor's Note: As you can see in the upper-right hand corner of the charts above, I was working with data from the end of June. Well sure enough, my point is starting to unfold. About a week after I wrote that, the small-cap market started to explode. In just a month and a half, it nearly pulled itself out of an entire yearlong funk: 
You can see here that it's nearly back to where we started the year. The Dow can't say that. But, don't think this trend is over. Small-cap cycles work over long periods of times, sometimes multiple years. We will surely see some more ups and downs, but this breakout marks the start of what could be a multi-year bull market for small-caps. While we are excited to have you on board Penny Sleuth during this exciting time, I want to do something extra for you. You may be familiar with Penny Stock Fortunes — the Penny Sleuth's big sister. Greg Guenthner and I give Penny Stock Fortunes readers opportunities to get in on tomorrow's leaders today, while they are still tiny companies. Well, I wanted to get you signed up for that as soon as possible, so you'll know what you should buy and when to sell while the small-cap rally is in full swing. I just received approval from my publisher to offer you a special 50% discount on a year subscription to Penny Stock Fortunes. You may not see this offer again. And even if you do, you might have already missed out on the best part of the small-cap boom. So grab your steep discount on Penny Stock Fortunes before you miss the boat. It's all right here…
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