Is it time to play “small ball?”
If you’ve been following the markets, you’ve probably noticed a trend.
The big boys have been doing the heavy lifting.
Mega-cap leaders like Nvidia (NVDA), Google (GOOG), and Apple (AAPL) have been on a tear lately.
In many ways, they’ve carried the market.
But I think the back half of the year could look very different.
Small- and mid-cap stocks could play catch up in a major way. They could even massively outperform the indices.
I say this because both the small- and mid-cap stock ETFs have been consolidating for months. They’re storing up energy for their next major move, which I think will be to the upside.
I say this for a simple reason: Interest rates appear to have topped.
If rates held lower, that would benefit many stocks—especially more rate-sensitive groups like small- and mid-caps.
That brings me to my new Trade of the Week: Onto Innovation (ONTO).
Onto is an $11.5 billion semiconductor equipment stock. It’s much smaller than leading semi names like Nvidia, Micron Technology (MU), or Broadcom (AVGO).
We’re putting on this trade for a few reasons.
For one, ONTO isn’t just any mid-cap stock. It’s one of the strongest on the planet. It’s rallied 52% higher so far this year and 113% over the past year.
In short, it’s in a strong uptrend. And it appears to have just begun its next major leg higher. You can see what I mean below:
Source: StockCharts (click to enlarge)
I suggest putting on a starter position in ONTO. I believe ONTO could hit $310 over the next 12 months.
Exit your position if ONTO closes below $210. That gives us a risk-reward ratio of more than 3:1 on this trade.
Action to take: Buy ONTO at current market prices.
Risk management: Exit your position if ONTO closes below $210.
Justin Spittler
Chief Trader, RiskHedge
PS: I expect to see a ton of new trade opportunities open up as market rotation continues out of mega-caps and into lesser-known names like Onto.
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