Looking at You Sideways

The old saying in markets is that, "The trend is your friend until it bends in the end." When applied to real-time markets, things naturally get murky. After all, it is really "bending" or just a bull market reset? Like most things on Wall Street, it winds up being much more of an art than a science, despite what the quants would have you believe. 

Either way, the small caps sure are bending sideways. 

On the IWM ETF updated daily chart, below, the smalls are clearly lagging today's mixed tape amid higher rates and oil. Small caps are now trading, overall, flat since Memorial Day. And they also seem to be threatening a major $290 support breakdown as you can see the highlighted bear flag break lower today. 

Smalls have been a trendy rotation pick for a good while now. But much of it was predicated of rates not being a long-term issue and, in fact, heading back lower. Since that has not been the case it stands to reason there is still a ton of money incorrectly positioned in these stocks, ripe to unwind violently if support is broken into one of the most seasonally bearish times of the year. 

On that note, with inflation data (PPI, then CPI, respectively) each of the next two mornings we should get another bond market test which seems to be clearly inversely correlated with small caps as the break down setup is evident.