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Posted December 10, 2025 at 10:09 am
Small Caps Continuing to Break Out
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On the 4th day of “Chartmas” the market gave to me…
Small caps… continuing to break out after an initial failed breakout (i.e., bull trap), and now they’re holding important levels that make these smaller stocks a very strong candidate for inclusion in an investment portfolio.
Notice how far back in time those prior highs go – all the way back to late-2021… and the way I learned it from my mentors is, “The wider the base, the higher in space.”
…but it’s not just small caps. Micro caps are breaking out in a similar fashion, going all the way back to a triple-top in early-2021.
So again, we’re looking at an (almost) 5-year base here, with very clearly defined risk management (i.e., an exit strategy).
Also, can someone tell me how it is that the market is in the midst of a major top – ready to crash – if the smallest, riskiest companies in the U.S. are breaking out to all-time-highs?
No rush. I’ll wait…
One of the reasons small caps are finally starting to come around – years after their big brothers and sisters (mid, large, and mega caps) have already broken out to their own, respective all-time-highs – is because rates are coming down.
Smaller companies don’t have the buying power or financial leverage that big companies do, so when rates come down, this is very “business friendly,” especially for the smaller “Mom & Pop” companies out there.
You can see in the chart below how the 10-year Treasury Yield peaked in fall of 2023, and while you could call it “trendless” at the moment (with some short-term choppiness and even a potential short-term breakout), the long-term trend is leaning negative, which is where it should continue if the Fed continues cutting rates into 2026 (which they likely will)
The 10-year Treasury is also closely tied to mortgage rates, by the way, so it wouldn’t be a terrible thing for the housing market to see the chart above resolve lower.
Bottom line, lower rates are a good thing for small and micro-caps, and I’ve never seen a bear market when the highest-beta stocks are breaking out, so I’ll call this more positive evidence as we make our way into 2026.
If you have any questions at all, feel free to email me personally, below.
Otherwise, stay tuned for day four of “The 5 Days of Chartmas” in tomorrow’s issue, and thanks, as always, for taking the time to read!
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Originally posted 10th December 2025
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