Friday’s surprise walkout by Republican debt-ceiling negotiators came as a bit of a surprise to investors and we saw stocks sell off at the end of the week. I say “a bit of a surprise” because no one really thought we’d get to the finish line without at least a little bit of theatrics along the way.

Friday’s news knocked the legs out from under what was starting to look like some good news for stocks (as measured by the S&P 500) which had been trading sideways over the last six weeks. But even though the S&P 500 was trading sideways, tech stocks as measured by the Nasdaq 100 have been roaring ahead, gaining more than 19% since the May 9, 2023 close.

That’s a huge move, and it’s primarily driven by big-cap tech darlings, including Apple, Microsoft, Amazon, Meta, and Google.

But at some point, I think we’re going to see investors shifting their focus away from the big tech companies and start to look for more upside opportunities from smaller, more off-the-radar names.

In fact, I think we’re already starting to see it.

Micro-cap stocks, as measured by iShares Micro-Cap ETF (IWC) have gained nearly 7% since the May 4, 2023 intraday lows. That’s a real solid move in the face of a flat market.

That opens up an opportunity to capture profits along the way if this momentum continues, and I’ve got the perfect way to capitalize on it with double-digit return potential.

In addition, I’ve been watching some of the top holdings in IWC, specifically the healthcare/biotech names, such as Geron Corp. (GERN) which is a late-stage biopharmaceutical company which has developed “imetelstat,” a promising blood cancer treatment drug.

Technically speaking, the stock looks very interesting. Shares have gained 35.19% off the April 27, 2023 intraday low, and at $3.15 per share, it’s getting very close to its 12-month closing high of $3.40.

If shares of GERN can break through $3.40 on higher-than-average volume, I like it as a speculative trade to the upside, but It’ll be a bit before we’ll know whether it’s a good opportunity or not, so I’m watching it for now.

While we’re keeping an eye on that, an upside play on IWC gives us exposure to the tailwinds in the small-cap arena.

I like buying the IWC July 21, 2023 $108/$109 Call Spread for $0.45 or less. Plan on exiting the position for a 100% profit.

As I write this, IWC is trading at $106.06, which is just above its 50-day moving average. That’s good, it’s always encouraging when we get above the 50-day moving average. And from here, IWC only needs to trade 3.82% higher to reach the 200-day moving average (currently at $110.11).

If shares of IWC close at, or above the current 200-day moving average on July 21, 2023, we’ll have been able to capture an easy 100% along the way.

— Shah Gilani

Source: Total Wealth