Small Caps vs. Large Caps: Who is Leading?

Clearly, large-cap stocks have been leading, with the Dow Jones down the least year-to-date. Yet, even though the selling pressure has been constant, trading volume has been anemic.

IWM normally trades approximately 27 million shares on average daily and traded approximately 17 million shares today. IWM also held the lows from this morning to this afternoon, and all the indices faced similar tests today. Our proprietary Real Motion Indicator is showing downward momentum, but it almost looks like our RM Indicator ran into an imaginary force and momentum was stopped in its tracks. The VIX is creeping up, so tomorrow is a make-or-break day for the bulls, since the SPY has seen five straight days of declines.

This is a tradable market and weekly closures are probably more important then the intra-week volatility, so let's follow the trend.

Grandpa Russell (small-cap stocks) is the worst performer compared to large-cap stocks, but that does not mean this trend will continue. The major indices have all experienced back-to-back days of significant declines, wiping out gains from when Powell spoke. The SPY extended losses Tuesday to drop below the 200-day moving average and needs to hold support around 390 to begin scaling back up to 400.

This stock market rally has had several significant one-day gains followed by pullbacks. That's made it difficult for stocks flashing buy signals to make much headway. Investors should be wary of adding too much exposure until the SPY ETF moves decisively above the 200-day moving average. The Nasdaq and Grandpa Russell 2000 (IWM) falling below their 50-day moving average and the S&P 500 falling further would be a sign to reduce exposure, but let's see.

Also note that the November CPI inflation report comes out on Dec. 13, with the year-end Fed rate hike and Powell news conference the following day. Those significant events could catalyze a market rally or reasons for the market to go south.

Investors should be ready to act. That means having watchlists ready, but it also means staying engaged and having a flexible mindset.

If you want to take advantage of our proprietary trading indicators, contact Rob Quinn, our Chief Strategy Consultant, who can provide more information about Mish's Premium Trading Service. Click here to learn more about Mish's Premium trading service with a complimentary one-on-one consultation.

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Mish in the Media

Mish discusses the importance of not adding trading risk into the rest of the year in this appearance on Business First AM.

Read Mish's latest article for CMC Markets, titled "Commodities to Watch in December".

Mish talks stagflation in her interview by Dale Pinkert during the F.A.C.E. webinar.

Watch Mish's appearance on Business First AM here.

Mish hosted the Monday, November 28 edition of StockCharts TV's Your Daily Five, where she covered some of the Modern Family. She also discusses the long bonds and gold with levels to clear or, fail.

ETF Summary

S&P 500 (SPY): The 50-week MA looms above as resistance 410 -- until that clears, this could return to support at 380 the 50-DMA. Russell 2000 (IWM): Similarly, 190 is resistance; now looking at 177 as support, must hold. Dow (DIA): As only index above the 50-WMA, support at 329 is key. Nasdaq (QQQ): Still the weakest index. Hovering on major support at 278 or trouble ahead. KRE (Regional Banks): After weeks of sideways action, this failed, with last major support at 57.00. SMH (Semiconductors): 212 support to hold; if this can lead, then 230 is the place to clear and take notice. IYT (Transportation): Another one to fail at the 50-WMA. Now, 213 to 214 is key support. IBB (Biotechnology): This has been the year of do not chase the breakouts. Like DIA above, the 50-WMA and will see if can holds 127. XRT (Retail): Never got the clearance over 67.00, so now we watch 63 as major support.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Wade Dawson

MarketGauge.com

Portfolio Manager