AllllSevens
Stock-Market Research, Institutional Trading & Market Inefficiencies
US small caps' first pullback since their historic, volume-supported breakout this year is a huge opportunity, because institutions are selling nothing and are actively accumulating around the $294 level. Weekly and daily charts show textbook accumulation on every failed new high, so the big picture holds even as short-term upside stalls. x.comÂ
The Russell 2000 faces near-term downside risk, as leveraged TNA failed new monthly highs twice at a very significant level and lost its EMAs with some velocity. Bear flow in IWM has been heavy, including an $11M September 295/285 bearish debit spread. That flow reflects hedging, not selling: institutions bought so much recently, including with leverage, that they are practically forced to hedge. x.com x.com x.comÂ
Small caps, utilities and regional banks look set for an oversold catch-up rebound as market breadth improves in early October. The broad market should make new highs led by semiconductors and big tech, with small caps and sectors previously held down by rates catching up. x.com x.comÂ
Improving breadth supports a possible IWM reversal. IWM may form a higher low today, but must first reclaim its 20-day EMA. Net new lows are easing, NYSE stocks above their 40-day average rose to 34%, and LS breadth's bear count is near the -300s from -450. A -450 reading has marked selling exhaustion. In bull-cycle pullbacks like this one, breadth rebounds tend to precede continuation; in bear markets, another leg lower tends to follow. The next move is uncertain. 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
Russell 2000 small caps look set to rise near term, based on heavy options betting on IWM to go up. x.comÂ
US small caps are now one of the strongest indexes, trending up almost steadily since April's low with shallower pullbacks than the Nasdaq, and the rotation into small-cap value is not over. The trend stays bullish while the index holds its 21-day EMA and the 296 gap, with gamma-structure targets at 305 and then 310-315. x.comÂ
US small caps are being used as a source of funds rather than trading as a rate-sensitive proxy, which leaves them vulnerable. Money is rotating out of the S&P 500 into equal-weight and NYSE names and from AI into defensives, while the Nasdaq 100 was hammered and is now bouncing. Rising yields are the bigger threat to AI bulls, yet Warsh is a dove in hawk's clothing. x.comÂ
US equities want to go higher off extreme pessimism. The wall of worry reached DEFCON 1 levels over the past several weeks and the Fear & Greed Index dipped into Extreme Fear, leaving opportunity across beaten-down growth stocks and crypto. If the Iran conflict de-escalates at any point, this is about as strong a setup as any since late March. x.comÂ
Small caps should keep outperforming because the companies receiving large caps' heavy capex spending are reaping the benefits, while large caps get repriced to reality. The Russell 2000 has been exceptionally strong against the S&P 500 and Nasdaq 100. x.comÂ
Small-cap rallies die when yields rise, and yields are rising now. @FinanceLancelot notes the share of Russell 2000 stocks above their 200-day average is back on trend, raising the chance of another bounce, but rising yields undercut it. x.comÂ
Falling rates and buying in financials, consumer discretionary and Home Depot make US small caps a very good buy here with high probability. The drawdown exceeds 11%, as it did at the start of the Iran war, and daily RSI and MACD are at similar bottoms. x.comÂ
