Thus far, small-caps are set to roar in 2026.
While big tech and mega-caps dominated headlines for years, the tide is turning.
The iShares Russell 2000 ETF (NYSE: IWM), the go-to benchmark for U.S. small-cap performance, is outpacing the broader market and just surged to new all-time highs.
On the IWM chart below, every candle represents one trading day:
Wall Street is starting to notice.
Analysts at Bank of America are now bullish on small caps for 2026, expecting them to outperform mid- and large-cap stocks as earnings growth accelerates and the Federal Reserve signals potential rate cuts in the months ahead.
These small-cap stocks are no strangers to volatility, and that’s exactly where traders like us thrive.
When small floats and under-followed names suddenly enter the spotlight, they can explode higher. And it creates massive monthly spikes that can turn disciplined entries into explosive gains.
As we approach the end of 2026, each month that passes, I expect the volatility to grow.
We’re hurtling toward a massive catalyst in the market and the crowd has yet to realize it.
How Volatility Turns To Opportunity
This isn’t ordinary market volatility … We’re hunting for gamma squeezes.
It’s a market phenomenon that can turn an average short squeeze into a full-blown account multiplier.
When a heavily shorted small-cap stock starts to rise, it triggers a chain reaction. Not just among short sellers, but among options traders and market makers.
As traders pile into short-dated Call options, market makers are forced to hedge by buying the underlying shares to offset their exposure. This buying pressure pushes the stock even higher … Which makes the Calls more valuable … Which forces even more buying.
It’s a feedback loop on steroids, and it’s capable of igniting moves far greater than a traditional short squeeze.
At the core of this dynamic is “gamma”, one of the most important (and misunderstood) components of options trading.
Gamma measures how fast an option’s delta, the sensitivity to price movement, changes as the stock moves. When options are extremely sensitive to price movement, the percent gain can be much larger.
Right now we’re seeing all the right ingredients in the market for volatility:
- High short interest on select small caps.
- Retail momentum pouring into cheap call options.
- Market makers scrambling to hedge.
- And a rising volatility backdrop that magnifies every move.
Look back at GME and AMC from 2020 and 2021, they’re textbook examples of how gamma squeezes can fuel multi-hundred-percent rallies in just a few days.
In this volatile small-cap environment, the gamma squeeze opportunities are growing. Every new breakout carries the potential to trigger the next chain reaction of bullish momentum.
As we push deeper into 2026, gamma squeezes could define the new wave of small-cap supernovas. And the traders who understand them early will have the edge.
The Main Sectors I’m Watching
Two sectors stand out as potential leaders for gamma squeezes in 2026: small-caps as a whole (the IWM index) and the precious metals sector (I’m watching SLV closely).
Small-cap stocks, as measured by IWM and the Russell 2000 index, started 2026 with strong momentum.
It outperformed the broader market and signaled a rotation out of mega-cap tech into smaller, more economically sensitive names.
While small-cap equities heat up, precious metals are carving their own path in 2026. Gold and silver enjoyed massive rallies in 2025, and as macro uncertainty persists both metals remain front of mind for investors seeking both hedge and upside exposure.
Silver prices alone have surged more than 25% already this year, reflecting continued investor interest and structural supply constraints.
ETFs like SPDR Gold Shares (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV) provide accessible momentum to capture these moves without owning physical metal.
These sectors both intersect with broader market psychology. Small-caps reflect growth and risk appetite with respect to big-tech rotation, while precious metals embody geopolitical volatility and hedge demand.
When both are active at the same time, traders can actually find a unique symmetry: Momentum in growth assets and shelter in macro-driven plays.
In a year that’s set to be defined by tech rotation and outsized moves, watch IWM and precious metals for momentum and optionality.
Keep an eye on both sectors. And get ready for this volatility to increase into the end of the year.
Stay Street Smart,
Jeff Zananiri
