SwingTrader
Stock & Bond Market Commentary
Small caps have the best chart of the three major US indexes, and money is flowing into the financials and biotech names the Russell 2000 is full of. The position was started on the post-FOMC flush and will be managed against the 9-day EMA, with the risk of exiting if Fed chair Warsh's press conference goes the wrong way. x.comÂ
A seasonal bottom ahead of maximum seasonal bullishness favors US small caps now. Stock Traders Almanac says the Russell 2000 is down 11% from its August 14 high and expects small caps to bottom in mid-to-late October before rallying into year-end. x.comÂ
High interest rates are hurting US small caps. The Russell 2000 is retesting its May lows even while the Dow is up and the S&P 500 is only slightly lower. x.comÂ
Banks and XLF look to have bottomed this past week, supporting a local bottom in US small caps. Stockspy1 noted that the Russell 2000 includes many regional banks, linking the banking-sector turn to IWM. x.comÂ
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.comÂ
US small caps are set up for bigger, faster moves lower because the Russell 2000 has slipped below its options flip level. At $285.58, IWM sits just under the $286.25 flip, where big option desks switch from cushioning moves to selling into selling, with $280 as the put floor and $293 as the call ceiling. SPY and QQQ remain calm; IWM is the one that flipped. Options price a $6.35 weekly move versus recent $4.87 weeks, so protection is expensive. x.comÂ
US small caps are leading the market, a sign of appetite for risk-on from here. The market clearly wants the Iran conflict wrapped up and the Strait of Hormuz cleared. When Iran's denial came out, stocks sold off only partly and with less momentum, suggesting the market can see beyond negotiations to some kind of peace deal. x.comÂ
US small caps are finally breaking out of their long pullback as the market recognizes that yields have likely topped, with inflation and Fed worries easing. x.comÂ
A suspected crash and liquidity squeeze make small-cap longs unattractive initially. x.comÂ
Strong corporate earnings make weekend crash panic a contrarian buying opportunity in US large-cap equities. Most individual stocks have already gone through bear markets despite the S&P 500 nearing record highs; weekend social-media panic rarely leads to a genuine economic downturn and instead offers long-term investors an attractive entry point. x.comÂ