Will Powell Give the 'Little Guys' a Big Breakout?
The Russell 2000 is setting up very nicely in front of the Fed and small-cap earnings season.
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The market is doing a very nice job of shrugging off the mediocre Microsoft MSFT earnings report and recovering from the sharp drop in Nvidia NVDA on Tuesday. The Nasdaq 100 QQQ has more than recovered its Tuesday losses and is leading with a gain of almost 3%. Nvidia is the leading stock in the group after suffering technical damage yesterday.
Overall, the breadth is about two-to-one positive, and there are about 650 new 12-month highs. Small-caps are green but are lagging a bit as the big-cap technology names suck up the inflows.
The Russell 2000 IWM is setting up very nicely in front of the Fed and small-cap earnings season. This is a very bullish chart:
The immediate question is whether a dovish Fed is going to help break small-caps out of this consolidation area. This is a very bullish setup, and it is likely to receive a boost from the Fed.
While Jerome Powell is not going to commit to any rate cuts yet, there is a good likelihood that the Fed Chair will hint at an increased likelihood of a more dovish Fed. There has been clear economic slowing, and inflation is mostly under control. The Fed doesn’t want to be accused of being too slow to cut rates. They will likely signal what is coming, and the market will start to price it in before September.
I’m busy with some shorter-term trades right now. A large number of stocks that I follow will report earnings next week, and I’m doing some positioning. It is very encouraging to see better action in smaller stocks after such a long period of underperformance.
At the time of publication, Rev Shark was long UWM.
