Rotation Trade Comes to Life as Small Caps Jump
The question is, how long will the rotation last?
Technical Edge
NYSE Breadth: 72% Upside Volume
Advance/Decline: 66% Advance
VIX: ~$14
The Nasdaq fell 1.3% on Wednesday, as mega-cap tech and semiconductors finally took a breather. The S&P dipped 0.4%, but the Dow gained and Russell 2000 ripped, gaining 0.3% and 1.8%, respectively.
There is clear rotation going on — at the sector and at the index level.
Put another way, there is money rotating out of tech (specifically big-cap tech) and into small caps, biotech, financials, industrials, and materials. The question is — as it always is with rotations — how long will it last?
If tech can avoid puking lower and the rotation remains strong, then this is very bullish price action. But if the rotation lacks follow-through, it can quickly turn into chop and we’ll have to again rely on mega-cap tech to prop up the indices.
We have a lot to cover.
IWM / RUT / RTY
A big burst over the $180 level and the 200-day moving average.
The IWM / RUT / RTY is now into the 61.8% and moving explosively. If it can continue higher, $192-$193 is next, followed by $196 and ~$200.
On the downside, you want to see it hold $180 and the 10-ema.
S&P 500 — ES
Pivot: ~4268 (+/- a few points)
Upside Levels: 4300, 4310, 4336
Downside levels: ~4240 + 10-day ema, 4224
SPY
Gap-fill and 10-day ema tag this week?
Three-day low is ~$426. Needs to hold this level for bulls to bounce.
Upside Levels: $427.50, $428.75 to $429
Downside Levels: $426.25, $425, $422.50 to $423
Yesterday we watched and waited for that 78.6% retrace + 10-ema combo on the 4-hour chart as a potential support area. Maybe we get it today?
The setup:
**For the SPX, the 78.6% retrace is at ~4253.50.
SPX
Upside Levels: 4275, 4285-90, 4300, 4311, 4321
Downside Levels: 4250-53, 4230 (gap-fill, 50% retrace of full range)
NQ
Holding last week’s low (so far). Watch today’s Globex low. If the NQ can get back above (and stay above) yesterday’s low of 14,305, it could push 14,353, then potentially 14,400+
A break of last week’s low near 14,250 and failure to regain it could create more weakness.
Pivot: 14,305
Upside Levels: 14,355, 14,400, 14,470 to 14,500
Downside Levels: 14,250, 14,130
QQQ
Right into the 10-day ema and near last week’s low. The 10-day ema is my preferred moving average, but as you all know, it’s not a holy grail.
Still, the Q’s have been in an incredible trend and taking a small “lotto” shot here doesn’t seem crazy to me. Ideally we hold last week’s low of $346.50 and at least get back to the “halfback” (the 50% retrace) near $352.50 - $353.
TLT
The TLT bottomed at $100 on the nose and bounced. Now rolling back over (and gapping lower this morning), I’m keeping a close eye on the gap-fill level down at $99.65.
With solid support in the $99s and a potential undercut of last month’s low in play, this is one to watch on the long side.
Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be B/E or better stops.)
** = previous trade setup we are stalking.
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Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM and AMZN.
PATH — dipped right into the 10-day ema and prior resistance between $17.50 and $18. Yesterday was volatile. Investors can either size a little smaller and use a stop-loss closer to $16 or play it tight and use $17.
Upside target is the same either way: $19 for first trim (⅓), then $19.50 (down to ½), then $20 (down to ⅓).
QQQ — The other day, we flagged the long setup on QQQ. If you didn’t get it yesterday, that’s okay. It looks like bulls will have a chance this morning.
Ideally you see last week’s low hold around $346.50. $345 would be a hard stop for short-term trades.
$352 is a trim spot, but $352.50 to $353 is the ideal upside level. I like lotto size here.
** TLT — I don’t know if we’ll fill the gap at $99.65-ish, but I will get long if we trade the mid-$99s and it holds as support. Still Stalking
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
Growth stocks ARKK — DOCN, PATH, CFLT, SHOP
LLY, CAH
AI stocks — NVDA, AMD, AVGO, ADBE, SMCI
Mega cap tech — MSFT, AAPL, META, CRM
Select retail — CMG, ELF (notice how they still sold LULU post-earnings)
Homebuilders ITB — TOL, KBH, DHI
BRK.B
ABEV, DXCM (on breakout watch)
Relative weakness leaders →
PYPL
MET
CF, MOS
PFE
EL, FL, DG
Economic Calendar
