Small cap stocks could benefit from rotation in August, says technical analyst

Published Mon, Aug 3 20202:07 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Key Points

Technical analyst Jonathan Krinsky sees small caps as one potential beneficiary if there is a sell-off in large cap tech in August.
"There's a lot of actually technology and high-beta names in there that I think can work," the chief market technician at Bay Crest Partners said on "Halftime Report."
The iShares Russell 2000 ETF, which tracks that small-cap index, is down nearly 10% so far in 2020.

(This story is for CNBC Pro subscribers only.) A rotation this month out of the large tech names that have been market standouts could benefit small-cap stocks, technical analyst Jonathan Krinsky told CNBC on Monday. "They've gone nowhere for two weeks. They've gone nowhere, really, for two years, and there's a lot of actually technology and high-beta names in there that I think can work," the chief market technician at Bay Crest Partners said on "Halftime Report." "I think small caps are an obvious rotation beneficiary as we push into August." The iShares Russell 2000 ETF , which tracks that small-cap index, is down nearly 10% so far in 2020. It has risen around 56% since its March 19th coronavirus-era low. August is a historically bad month for stocks. After strong earnings last week from tech titans Apple , Amazon and Facebook , Krinsky said he sees some signs that may indicate history could be right again. "I think one of the reasons that you have those weak seasonals is because of the set up we have now where a lot names report in late July, early August. You tend to see a run up into the earnings. If they report good numbers, the stocks can go up," said Krinsky. "But then you're left with a 'now what?' moment as you enter the meat and the back half of August. That probably is the set up again this time." Krinsky pointed to Apple, in particular, following the iPhone maker's blowout quarter in which it posted 11% sales growth despite a pandemic that prompted brick-and-mortar store closures. Apple also announced a 4-for-1 stock split , which is set to take place later this month. "There's a lot of hype around Apple's stock split. Maybe you continue to run into that. But you have to recognize that a name like Apple is about 50% above its 200-day moving average. That's about as extended as it tends to get," he said. "And now it's pushing toward the $2 trillion market cap. To put that into perspective, the entire Russell 2000 is about $2 trillion in market cap." However, Krinsky cautioned that he does not believe a pullback in some large-cap tech names automatically means investors will start looking elsewhere. "It doesn't have to be an either-or situation, where if you see a sell off in mega cap tech, the money has to go into another area of the market," he said.

A trader works on the floor of the New York Stock Exchange.

Michael Nagle | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

A rotation this month out of the large tech names that have been market standouts could benefit small-cap stocks, technical analyst Jonathan Krinsky told CNBC on Monday.

"They've gone nowhere for two weeks. They've gone nowhere, really, for two years, and there's a lot of actually technology and high-beta names in there that I think can work," the chief market technician at Bay Crest Partners said on "Halftime Report." "I think small caps are an obvious rotation beneficiary as we push into August."