David and Goliath, or the Small vs. Giant Caps | Mish’s Market Minute


Within the Bible story, David and Goliath characterize resilience and overcoming odds. David, a small sheepherder, locations a stone in a sling to hurl at Goliath’s head. David will get a clear hit and Goliath falls. David then makes use of Goliath’s sword to kill and decapitate the enormous.

If we take a look at the small caps and the big caps as seen via the lens of IWM and QQQ, it definitely is analogous to the parable.

Small caps, like David, have needed to overcome odds to point out resilience. In October 2022, each IWM and QQQs bottomed out. Then, in February 2023, it nearly regarded just like the small caps have been ripe to take out the 23-month shifting common in blue (or a few 2-year enterprise cycle)… till the industrial financial institution disaster.

In case you are new to the Dailys, I’ve written extensively on the 2-year cycle as key this 12 months, given the bull run of 2021 and the bear run of 2022. This 12 months, we knew could possibly be pivotal. However is it actually?

As soon as the small caps fell from the important thing resistance, Goliath wakened. Giant caps started to rally, departing from the weak point of the small caps. QQQs saved going and, by Might, cleared the 23-month, and off it went. In the meantime, IWM struggled to hold on to the 80-month or in regards to the 6-to-8-year enterprise cycle low. Apart from the COVID crash, IWM has been above the 6-8 12 months low for over a decade. In reality, we averted the recession from a technical perspective as not solely did that enterprise cycle low maintain, however in June the IWM started to run up as nicely.

Anyway, again to our story. It appeared that, this previous week, small caps have been as soon as once more ripe to run. After all, NASDAQ has not stopped. In spite of everything, know-how, in line with market sentiment is the savior of all the pieces… however is it actually?

Right here is the place David v. Goliath is available in. Small caps as soon as once more ran proper to the 23-month shifting common and closed the week under it. Now, it could clear it in a while this month. If IWM does clear, we predict that may take some thunder from the big caps with one other rotation to worth, however not essentially the ultimate blow for QQQs. Nevertheless, if IWM can’t clear, then we are able to start to take a position that David has slung the rock at NASDAQ’s big head. Solely this time, they each could fall.

Why may IWM not clear the 23-month MA? Inflation, Fed hikes, bonds again in vogue, poor earnings, customers chopping again??? Take your choose. It’s although, too quickly to inform.

However let’s finish with a possible stone.

Client Staples (XLP).

As this simply cleared the 50-daily shifting common, a transfer over 75.00 may certainly sign that the patron is shifting away from toys, and extra in direction of issues they actually need.

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Coming Up:

July 21: BNN Bloomberg

  • S&P 500 (SPY): 450 pivotal space failed 440 assist.
  • Russell 2000 (IWM): 193 is the 23-month holy grail.
  • Dow (DIA): 34,000 pivotal.
  • Nasdaq (QQQ): Nice weekly shut, so IWM will certainly be key.
  • Regional banks (KRE): 42.00-44.00 vary.
  • Semiconductors (SMH): The place Goliath goes, so do semis — one other potential reversal high.
  • Transportation (IYT): Below 250, some hassle.
  • Biotechnology (IBB): 121-130 vary.
  • Retail (XRT): 65.00 key assist for this coming week.

Mish Schneider


Director of Buying and selling Analysis and Schooling

Mish Schneider

Concerning the writer:
serves as Director of Buying and selling Schooling at MarketGauge.com. For practically 20 years, MarketGauge.com has offered monetary info and training to hundreds of people, in addition to to massive monetary establishments and publications similar to Barron’s, Constancy, ILX Programs, Thomson Reuters and Financial institution of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of many high 50 monetary folks to observe on Twitter. In 2018, Mish was the winner of the Prime Inventory Decide of the 12 months for RealVision.

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