Chart: Aussie Small Caps
Surging small caps have investors asking: is this a risk or opportunity?
Australian Small Cap stocks have had an exceptional run since the April tariff tantrum reset, but what’s behind the recent move —and is it sustainable?
From a technical standpoint Aussie small caps look great, we’ve seen a failed breakdown, a successful breakout to new highs, and overall a solid uptrend being established. This is a clear picture of strength, and the only quibble might be that it looks a little overbought short-term (as markets tend to do during the early stages of new bull markets).
Unlike their US peers, Australian small caps are starting to look somewhat expensive, but from a cycles and market timing perspective we care less about expensive valuations: a. during the early stages of the move; b. when technicals are very strong; and c. if the valuation indicator is high *but not yet extreme*.
Add to this the generally strong price action in global equities (global risk-on sentiment and flows), RBA + Fed rate cuts, and bull market in gold (+improving outlook for commodities and traditional cyclicals) there probably is room to run here. [n.b. the ASX Small Ords has significant exposure to gold miners and traditional cyclicals; minimal exposure to tech].
Key takeaway: Australian small caps are breaking out with strong technicals, and there still looks to be room to run on valuations and macro.
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Best wishes,
Callum Thomas
Head of Research & Founder
Topdown Charts | www.topdowncharts.com
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/
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