Small-Caps and Retail Hold the Line in the Sand

I spent all of last week, in the media and in print, going over the importance of 2 key indicators. (See the media clips below.)

Our risk gauges on Big View, all of which kept flashing risk-on regardless of the doom-and-gloom and initial selloff in bonds and SPY. The monthly charts on small caps and retail (IWM and XRT), both of which drew lines in the sand.

Although we have not changed our mind about the real possibility of stagflation as we head into 2024 (DBA and DBC 2 commodity ETFs continue to outperform the SPY), this clutch rally on Friday, in the face of a strong employment report, was not unexpected.

Last week, we wrote this: "Now, along with Retail XRT, both IWM and XRT-Granddad and Grandma of the Economic Modern Family-have a new story to tell. The 80-month moving average (green line) is a longer-term business cycle or about 6-7 years. Besides the blip during COVID, IWM has not broke that 80-month MA since 2010. XRT sits right above the 80-month."

The day prior, on the risk gauges we wrote this: "If you are finding yourself fluctuating between bullishness and bearishness, then congratulations! Hopefully, that also means you are waiting for certain signals to help you commit to one way or another. Here are the signals we are waiting for before overly committing to a bias:

As we wrote over the weekend, how the junk bonds (high yield high debt bonds), do independently, and how they perform against the long bonds (TLT). How the retail and transportation sectors do (along with small caps) as they represent the "inside" of the US economy. How DBA (ags) and DBC (commodity index) do relative to the strong dollar and higher yields."

If you combine the rally on Friday, with the notion that our risk gauges stayed positive, the bigger question now is... what's next?

Recession, to us, will be represented by a break of the 80-month moving average in either IWM or XRT and stronger if in both. And, as much as we all love the save on Friday, the TLT closed down again, or bond yields rose. Small-caps (IWM) still closed down for the week as did Retail (XRT). SPY and NASDAQ QQQ, however, closed the week higher.

Can that help keep the small caps and retail from failing the 80-month moving average? Maybe. DBA closed unchanged. DBC closed much lower because of the drop in oil prices. Commodities remain elevated regardless.

So the big questions for this week are:

Can growth stocks boost the small caps, or will small caps drag everything down again? Can the risk gauges stay risk on, especially if bonds reverse at all and SPY begins to underperform? Can junk bonds continue to hold and outperform the long bonds?

We would like to see IWM get back over 177 and Retail get back over 61.00. Otherwise, the first question will most likely be answered by no, this rally cannot sustain.

It seems the market took the jobs report as a peak in employment for 2023. It also seems that the bond market did not take it that way.

We are still at a precipice. Bulls need to see the bond market steady and small caps improve. The bears need to see higher for longer and small caps fail the 6–7-year business cycle. Commodities traders need to see oil rebound, natural gas continue the rally, DBA grow some more green shoots, dollar to fail 106 and yields to at least, not go up any further from here.

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Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

To quote Al Mendez, "The smartest woman in Business Analysis @marketminute [Mish] impresses Charles with her "deep dive" to interpret the present Market direction." See Mish's appearance on Fox Business' Making Money with Charles Payne here!

Mish covers bonds, small caps, transports and commodities-dues for the next moves in this video from Yahoo! Finance.

In this video from Real Vision, Mish joins Maggie Lake to share what her framework suggests about junk bonds and investment-grade bonds, what she's watching in commodity markets, and how to structure a portfolio to navigate both bull and bear markets.

Mish was interviewed by Kitco News for the article "This Could Be the Last Gasp of the Bond Market Selloff, Which Will be Bullish for Gold Prices", available to read here.

Mish presents a warning in this appearance on BNN Bloomberg's Opening Bell -- before loading up seasonality trades or growth stocks, watch the "inside" sectors of the US economy.

Watch Mish and Nicole Petallides discuss how pros and cons working in tandem, plus why commodities are still a thing, in this video from Schwab.

Mish talks TSLA in this video from Business First AM.

See Mish argue investors could jump into mega-tech over value and explain why she is keeping an eye on WTI prices on BNN Bloomberg's Opening Bell.

Even as markets crumble, there are yet market opportunities to be found, as Mish discusses on Business First AM here.

Mish explains how she's preparing for the next move in Equities and Commodities in this video with Benzinga's team.

Mish shares why the most important ETFs to watch are Retailers (XRT) and Small Caps (IWM) in this appearance on the Thursday, September 20 edition of StockCharts TV's The Final Bar with David Keller, and also explains MarketGauge's latest plugin on the StockCharts ACP platform. Mish's interview begins at 19:53.

Mish talks Coinbase in this video from Business First AM!

Mish looks at some sectors from the economic family, oil, and risk in this appearance on Yahoo Finance!

As the stock market tries to shake off a slow summer, Mish joins Investing with IBD to explain how she avoids analysis paralysis using the six market phases and the economic modern family. This edition of the podcast takes a look at the warnings, the pockets of strength, and how to see the bigger picture.

Coming Up:

October 12: Dale Pinkert, F.A.C.E.

October 26: Schwab and Yahoo! Finance at the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets

ETF Summary

S&P 500 (SPY): There are multiple timeframe support levels round 420-415. Russell 2000 (IWM): 170 area huge. Dow (DIA): 334 pivotal. Nasdaq (QQQ): 330 possible if can't hold above 365. Regional Banks (KRE): 39.80 the July calendar range low. Semiconductors (SMH): 133 the 200-DMA with 147 pivotal resistance. Transportation (IYT): 237 resistance, 225 support. Biotechnology (IBB): 120-125 range. Retail (XRT): 57 key support; if can climb over 61, get bullish.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education