05Nov10:57 amEST

Time to Zig When They Should Zag

Stocks are mostly cooling off this morning after a nice run in recent sessions, something which is entirely understandable and to be expected especially with a variety of post-earnings selloffs from the likes of AMRN UBER SHAK. 

Going forward, though, the larger test will be whether this digestion spawns a larger pullback and conjures up memories of the last few quarters when the market seemed hell-bent on staying in a sloppy and choppy range on the senior indices all the while small caps struggled mightily. Thus, turning our attention back to the small caps, below on their IWM ETF's daily chart, we can see an extremely obvious range dating back a full year, if not longer. 

It would seem to be fairly predictable that IWM would now falter at $160 resistance, just as it has since October 2018. 

But is that scenario now too obvious to actually happen again? 

While many software growth stocks are still trying to get off the mat in the midst of a sector correction since September, energy, healthcare/bios, housing, and especially semiconductors have all done their part to pick up the slack. To expect the small caps to zag lower here is entirely logical and must be respected if it materializes. But to see them, perhaps, pullback quietly and in a shallow manner for a few days before "zigging" higher may very well be the more likely scenario given underlying improvement in various sectors alongside the senior indices printing new highs. 

Moreover, we are out of the seasonally rough August-October patch and have the holidays to look forward to, last year's meltdown notwithstanding. Put another way, the next few days should be very telling not just for small caps but indeed the entire market. 

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