Clearly, large-cap stocks have been leading, with the Dow Jones Industrial Average ($INDU) down the least year-to-date. Yet, even though the selling pressure has been constant, trading volume has been anemic.
The iShares Russell 200 ETF (IWM) normally trades approximately 27 million shares on average daily and traded approximately 17 million shares today. IWM also held the lows from this morning to this afternoon, and all the indices faced similar tests today. Our proprietary Real Motion Indicator is showing downward momentum, but it almost looks like our RM Indicator ran into an imaginary force and momentum was stopped in its tracks. The Cboe Volatility Index ($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 than 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 doesn't 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 SPDR S&P 500 ETF (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 SPY moves decisively above the 200-day moving average. If the Nasdaq Composite ($COMPQ) and IWM fall below their 50-day moving average and the S&P 500 Index ($SPX) falls further, it would be a sign to reduce exposure, but let's wait and 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 your ChartLists ready, but it also means staying engaged and having a flexible mindset.
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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.
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