Riding it Out

On the back of a post-earnings 3-4% selloff in TSLA, equities staged a sloppy open off the bell. Indeed, at the time of this writing we still have the senior indices sightly in the red with spotty underlying upside momentum thus far. 

However, and perhaps of the utmost significance, the small cap stocks in the Russell 2000 Index continue to exude relative strength to their larger cap brethren. Given how perilous the IWM (the Russell's ETF) looked last week around this time on a $220 breakdown attempt, their resilience will be a critical factor in the bull case for more constructive price action for swing and momentum traders going forward. 

Mind you, the headwinds piling up seem fairly obvious at this point: Rising inflation fears, extended senior indices, Biden raising capital gains taxes, The Fed (perhaps) beginning to ease off the punch bowl, among many other factors. But, as we have seen of late, the market has shown a propensity to correct these issues sideways, or "through time," rather than via price, at least in unison from the top-down. 

While correcting sideways does not guarantee further upside (it may very well be part of a larger topping process, after all), I am convinced that the linchpin remains the small cap stocks, either way. 

And as we update the IWM daily chart, below, so long as the $225 upside breakout holds (after last week's $220 breakdown failed miserably), the path of least resistance may very well prove to be a drift higher to the surprise of many.