Hey Market Pilot,
The markets have been on fire for months, but that isn’t necessarily the case beneath the surface. Despite the S&P 500 and the Nasdaq trucking along and making new all-time highs, there is a large contingent of tickers not doing well. One thought is that perhaps these stocks are cycling down into better buy points since they had moved up so strongly in 2020. The question is ─ when are those stocks going to come back alive? I think it is going to be based on the small-cap index such as the Russell 2000 ETF (IWM).
Another ETF index that I look at is the IBD50 (FFTY). This ETF helps give me a little bit of a visual for what another swath of the market is doing and how things are going. Many people have been waiting for the markets to roll over and move down because, let’s be honest, we’re all wondering how long the market can sustain this kind of move from the Covid-19 low. But when I look at the IWM or the FFTY, I wonder if we are actually closer to moving up again and all we have to do is be patient for when that opportunity presents itself.
I have posted an image below of the FFTY monthly and weekly charts. You can see it has largely gone nowhere but sideways for months on end at this point. The fact that it has held up so well for so long has me leaning toward the bullish side. More specifically, now that It seems to have found support at the monthly 10 simple moving average (SMA) and weekly 50 SMA, I think that we could be seeing the beginning of the next bull run as long as price holds these moving averages.
The IWM is where some of the highest betta names live and is where most of the dwindling tickers have been concentrated. Despite all of this weakness below the surface, the index has been trading sideways just like the FFTY. Since the IWM has spent several months recovering from its overbought situation, we can see that price is now coming into the monthly 10 SMA. I wonder if that is going to be a support point and a place where we can start seeing if there’ll be strength again?
In order to answer our questions, we have to wait and watch the lower time frames to see when they actually start to move in an upward direction. For now, the IWM can’t confirm that bullish stance on the lower time frames. And we continue to wait to see what all the results are from this earnings season and if they will give us any clues as to the strength and direction of the overall market and the economy.
There are a lot of moving parts right now, and the market can’t seem to figure out which ones are important.
Your Profit Pilot, TG