Felipe Guirao
Founder of Liberty Signal, Systematic End-of-Day Swing Trading
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.com
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.com
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.com
Bond pressure should weigh on US small caps. IWM is also losing its long-term trend line. x.com
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.com
Rising S&P earnings revisions and a Nasdaq valuation far below the 2000 bubble level argue against a bull trap in US large caps. Nasdaq trades at 18x forward earnings versus over 80x in 2000. Positive breadth divergences, record short ETF exposure and put volume, and semiconductors waking up add to the case. In all 19 post-midterm instances cited, markets were very green over the following 12 months. x.com x.com
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.com
Forward risks matter more than good earnings for the Nasdaq now. The index looks to be topping and has a good shot at 28,000 before a rally after the midterms; tomorrow's PCE and GDP releases are unlikely to help, and this week's lows could break. x.com x.com
Broad deterioration beneath the surface keeps meaningful US large-cap exposure premature despite selective growth setups. Deepvue's breadth dashboard puts 56% of stocks in Stage 4 declines, while Friday saw 498 new lows against 170 new highs. A handful of medical/healthcare and software leaders can be tested in positions of 3%-5% of portfolio equity, but total exposure has a 15% hard ceiling, not a target. Adding depends on those leaders following through, better market conditions and results. … Show more
Elevated 10-year Treasury yields, the dollar and crude oil keep the Russell 2000 from working. Even IWM's top 500 companies are awful. x.com
SPY's current pullback looks brief because whale accumulation remains above the level associated with mid-term trend continuation. The reading is 87.74%; it fell below 80% before both recent major crashes. Barring a black-swan event or major unexpected fundamental shift, this decline looks closer to earlier minor corrections. The stock market still has significant upside, and fear-driven discounts remain opportunities. x.com x.com
