Small-caps still facing difficulties, despite SMCI performance

Tuesday’s SPX decline doesn’t cause any technical deterioration in the near-term uptrend as Technology largely was responsible for the early decline which grew a bit more serious as the day unfolded.  However, SPX remains above 5057, the late February lows, and its short-term uptrend remains intact from mid-January with no evidence of any trend damage.  I suspect that SPX is en route to ~5200 and potentially even 5250 by 3/20 and it’s necessary for SPX 5057 to be broken to have any concern about even a minor 2-3 day pullback.  Bottom line, despite Tuesday’s minor pullback, it’s right to stick with this current trend given little to no evidence of trend failure.

Overall, Technology’s weakness in some of the former highflyers resulted in minor weakness Tuesday morning, but Breadth largely remained positive for most of the session until Industrials and Materials weakness became a bit more negative.  Yet, none of the major 11 sectors outside of Technology finished with losses greater than 1.00%.  Moreover, three sectors finished positive on the session and market breadth proved to not be largely mixed and just fractionally negative.   Bottom line, Equity trends continue to show no technical evidence of wavering. 

As the chart below shows, SPX’s minor weakness failed to do any damage to the existing trend. Until/unless 5057 is broken on a daily close, Tuesday’s weakness likely spells opportunity for the Market  bulls.

S&P 500 Index

Small-caps still remain trending lower vs. Large-Caps despite a better than expected February

As shown below, despite a better than expected February by the Russell 2000, there hasn’t been sufficient strength to favor the Small-cap trade.

Lengthy intermediate-term trends remain pointed lower and it’s thought that if/when SMCI 8.90%  exits the Russell 2000 to join the SPX, this might prolong the Small-cap rebound a bit longer. SMCI, as many know, was higher by 63.5% in February, which accounted for about 10% of the return in the Russell 2000’s +5.52% gains.

Technical evidence of a move back up above the former peaks from late December/early January would prove bullish and a necessary development before shifting too much capital to the Small-cap trade.

It’s expected that a meaningful downturn in Interest rates might be necessary before the Small-caps can begin outperforming in larger measure.  Recent economic data has proven fairly resilient, and as this weekly relative chart of Small caps vs. S&P 500 shows below, the Small-cap trade has not yet really gained traction.

IWM ETF / SPY ETF

Small-cap performance was largely dominated by a few select names, not unlike the S&P 500. 

As shown below, the top five performers contributed to nearly 25% of the performance in Russell 2000 last month. 

SMCI 8.90% , MSTR 3.52% , VKTX, CVNA 8.79% , and FIX -3.02%  all rose quite sharply last month, with SMCI’s 63.5% gains representing a +0.65% contribution to the Russell 2000’s +5.52% gains.

S&P Dow Jones Inc. announced that SMCI 8.90%  will join the S&P 500 as of 3/18 along with DECK 3.34%  to replace WHR and ZION.  While announcements like this can occasionally lead to near-term outperformance in the stocks which will be newcomers to the S&P given portfolio adjustments for ETF’s and mutual funds, the act of SMCI leaving the Russell might produce worse performance in April if other stocks don’t turn higher to “Pick up the slack, ” in my view.

I’ll continue to monitor the Small-cap contribution and will discuss Mid-cap contribution on Friday.

RTY: Top 20 Constituents by CTG to Index Returnin February

Tesla is growing increasingly more attractive from a counter-trend perspective;  However, it should pay to wait for shares to stabilize

It’s important to mention that TSLA is growing a bit more attractive for the dip-buying crowd following this week’s pullback despite the ongoing downtrend.

Shares dropped on heavy volume Monday and followed suit Tuesday down to levels near former lows.

In past conference calls with Tom Lee I’ve discussed how TSLA might have the chance to fall to $160, or even lower to $143-$150, but that early March 2024 could have importance from a time perspective along with early April for the possibility of TSLA making a low given time-based cyclical projections.

Overall, it’s early as of Tuesday’s close (3/5) to think TSLA is all that compelling technically given its ongoing downtrend, no evidence of meaningful stabilization and/or strength along with heavy volume accompanying the recent selling.

However, counter-trend daily “13 Countdown” signals (DeMark indicator) are now present in TSLA, and the shares are growing closer to channel support which currently intersects just below $170. 

Given the degree of underperformance in recent months, I feel that TSLA is growing closer to an area where this will likely stabilize and then turn back higher sometime this Spring.

Bottom line, evidence of DeMark based TD Sequential signals being confirmed would add to the appeal of trying to buy dips along with seeing TSLA climb back above late February highs at $205.60.  This latter level should become the new entry spot for trend following investors as weekly closes above $205.60 would signal a positive structural change that likely could lead TSLA much higher in the months ahead. 

Until this happens, I’ll be watching closely given that shares are now in the window where trend change is possible between now and early April, or roughly in four weeks’ time.

Despite the existing downtrend, I would find TSLA attractive from a counter-trend perspective on any dip down to $170 or lower, and feel that this area could be important technical support.

For now, it’s worth watching given the degree that prices are nearing an area of prominent channel support.

TSLA Equity