By Chris Vermeulen via Iris.xyz.
We believe a unique Pennant/Flag formation is setting up in the US stock markets. We believe the small cap sector may provide a better technical reference to the price breakout we are expecting in late August or early September than the mid or large-cap sectors. The charts tell a very interesting story when comparing the different market segments to the S&P 500 SPY [ARCA] – $294.00 0.43 (0.15%).
As most of you are well aware, the very deep selloff between October and December 2018 prompted a low price pivot point that most technical analysts are using as a reference to support. What we find interesting is that these small caps have really failed to mount any type of price recovery. We believe this is because of the continued capital shift where foreign investors and institutional investors are piling into mid-cap and large-cap equities chasing dividends and safety. A leveraged small-cap index ETF chart may provide the best technical reference for the pennant formation and eventual breakout move.
This weekly chart of the Direxion Daily Small Cap Bull 3X Shares TNA [ARCA] – $60.74 1.68 (2.69%) highlights exactly what we are referencing in comparison to the mid-cap and large-cap charts. Pay very close attention to the support level near $53.50. Also, notice that define panic formation setting up after the December 2018 bottom. We believe the price rotation in the small-cap index is clearer and more identifiable than the rotation in the mid-And large-cap indexes. We also believe the small-cap index will show early warning signs of price weakness or strength after the apex of this move.
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