Market Update-Small Caps Session Low
12:30 p.m. ET
It’s the same story as earlier, the mega-caps in Technology, Communications and Consumer Discretionary, have taken over leadership. It’s kind of similar to early 2020, a half-dozen mega-cap stocks supporting the entire market and benefiting NASDAQ 100 the most.
On the other side the growth sensitive cyclicals are reacting to negative economic developments first – Materials, Energy, Financials/Banks, Industrials/Transports are weighing on the broader market which is reflected in Small Caps’ (or NYSE’s) weakness.
NASDAQ 100 (5m) outperforming
IWM (5m) under-performing
SP-500 (5m) in the middle, just continuing yesterday’s consolidation (bearish) as expected.
The dynamic is also leading to negative divergences in market breadth.
The Banks continue to bleed lower…
Regional Banks (5m)
Technology continues to consolidate
Tech sector (5m) this is a small bearish consolidation, but above a probable strong support zone ($86.60 area).
Market signals have not improved as Bond yields legged lower.
SP-500 (2m) and 30-year yield
The majority of stocks are not acting well evidenced by the broader Russell 2000 or NYSE’s relative weakness, while a handful of mega-caps buck the trend. VIX is depicting the tension and risk to the downside for stocks…
VIX (60) 5 weeks ago the firs sign of the market’s potential to rally was Volatility showing relative weakness, opening a window for the S&P to string together more than a single day of green closes. Volatility hasn’t gotten a lot of attention recently, but this is a large bullish consolidation, a wedge. Notice the range narrowing to an apex suggesting a make-or-break moment.
Closer look…
VIX (5m)
I’ll keep the small cap short, but if I add to short exposure, I like the risk reward profile of NASDAQ 100 (QQQ) better at this point. I have stayed away from buying puts to express a market short view because the decline in volatility has made even a winning directional trade perform much worse or even led to losses. If volatility is about to explode higher, than despite the still lofty option premiums, buying puts looks more attractive. Or maybe buying some volatility.
As I’ve been putting this post together, small caps just moved to a new session low.
IWM (2m)
I still intend to hold the Small Cap short looking for IWM $110-$111 and then reassess, unless something changes along the way.