EB Daily Market Report - Quick Update - Friday, June 2, 2023

I'm working on the June Seasonality Report and I'm also working to update most of our ChartLists as of today's close (should be available over the weekend). Meanwhile, I wanted to give you a very quick update on early Friday action.

Jobs Data Strong

There's been much "media talk" about a recession, but the economic data simply doesn't support it. This morning, we received the May nonfarm payrolls, which jumped to 339,000, well above the consensus estimate of 190,000. Also, the April payrolls number of 253,000 was revised higher to 294,000. These readings do not support a recession is on the horizon. And neither does the technical price action. Money has been rotating into growth FROM value this entire year thus far. That's NOT how Wall Street prepares for a recession. Growth would be in the dumpster. This is why it's so important to listen to the story that the charts are telling - not the one CNBC is telling.

Small Cap Revival

Well, here's another chance for the small cap bulls. I continue to believe that this group will make its run too - similar to its large cap counterparts, even if not quite as strong. It's the reason that I used small cap weakness in its consolidation stretch to accumulate the TNA, the 3x leveraged ETF that tracks the IWM. Here are two charts of the IWM, reminding everyone of the current consolidation phase and prior consolidation phases, and what has happened when the IWM breaks out of them:

IWM - current consolidation:

If the breakout is made, I believe the IWM is "off to the races" - just my opinion. And those who have been doubting this rally due to poor breadth are going to begin to see breadth play some catch up. The PPO is starting to rise off its centerline - a beautiful setup if it coincides with a breakout.

IWM - prior consolidation:

This consolidation has taken longer than previous periods, but this one looks poised for a more meaningful rise, if the breakout occurs. The long-term weekly chart is moving up from very close to major long-term support. This, too, adds to the likelihood that a breakout here is sustainable for a long period of time. I plan to hold my full TNA position as I'm anticipating this rally and breakout to stick. For those that are a bit more conservative, selling the TNA right here at resistance might make sense. I'm willing to take on the additional risk, however. If we see 181 or higher intraday and we get another false breakout, taking some profits on the TNA certainly would make more sense.

Transports Aiding Rally

I LOVE to see the transports ($TRAN) getting involved. Similar to small caps, transports had been lagging badly. Yesterday, I showed a downtrend line to watch. We're crushing it today:

Barring a huge afternoon reversal, which is entirely possible by the way, I see transports and small caps leading the next stage of this secular bull market advance.

Happy trading!

Tom