Small Caps Request to Stand on a Box

We knew at some point that the runaway rally in the Nasdaq would take at least a respite of some sort. And we are seeing just that this morning, with one of the Fed heads out and about dispelling the notion of a rate cut coming. 

That said, we still have quite a bit of action in the tape with SPCE absolutely punishing all short-sellers who dare step in front of a mission to Mars. Even pot stocks are perking up, with lowly CGC NBEV TLRY off to a hot start this morning. Mind you, all of this is happening while several asset classes seemingly detach, as gold, Treasuries, and the U.S. Dollar all march higher to the amazement of quite a few macro tourists. 

To my eye, though, the true linchpin for a further rally in the market resides in the Russell 2000 Index, housing small cap stocks. As we know, the ETF for the Russell is IWM, seen below on its updated daily chart. 

Unlike the senior indices, the IWM is far from extended. In fact, it is still trying to cement a meaningful base breakout to take over some rotations if not the outright leadership reigns. As chart patterns can and do morph, it now looks like $169/$170 is shaping up as the marquee level for small caps to clear in order to set in motion that fresh breakout. 

Should that rotation materialize, the bear case would be postponed yet again--Just because some stocks like SPCE and TSLA have run wild does not mean the entire market has, too.