EB Daily Market Report - Quick Update - Wednesday, November 8, 2023

There's really not much happening in the stock market right now. We had a very nice rebound and have run into a wall, at least temporarily, as both the S&P 500 and NASDAQ 100 attempt to clear a key hurdle in re-establishing an intermediate-term uptrend - and perhaps even the long-term secular bull market uptrend.

A close above 4400 on the S&P 500 would clear the mid-October high, which topped out at 4393.57. A close above 15335 would look much more bullish. Both of these resistance levels are key highs in the series of lower highs and lower lows that made up our July-October correction. To the downside, I view key support at the now-rising 20-day EMA.

Today, I want to focus on the IWM, the ETF that tracks the small cap Russell 2000. I had several questions in this morning's Live Trading Room, so let me address my current thinking here. First, the IWM has visibly underperformed both the QQQ and SPY since testing its 50-day SMA from underneath. Today's selling has reached the IWM's rising 20-day EMA. This is a key area for the IWM as you can see below:

There are positives and negatives on this chart. It's definitely a mixed picture. First, and most obvious, is IWM's need to hang onto both gap support and the rising 20-day EMA. Failure to do so certainly opens the door to further selling. A major negative right now for small caps is its continuing relative underperformance shown in the middle panel. As long as this IWM:QQQ relative price action is heading lower, then QQQ is clearly the better choice to invest in.

Finally, check out that last panel at the bottom. This is the XLY:XLP ratio, which informs us of whether the more aggressive consumer discretionary group (XLY) is leading or if the more defensive or value-oriented consumer staples (XLP) is leading. Since the market bottom in late-October, this ratio has risen just about every single day.

The signal I keep hearing from all of this is......we're going higher, but we should expect leadership from large caps until small caps wake up. The 20-day EMA is an opportunity for small caps to do just that. But will they?

Happy trading!

Tom