The Broad Market Just Shifted to the Upside

Russell 2000 Index ETF (IWM) is testing its 200-Day Moving Average (MA200)

Small-cap stocks have had a rough year as the IWM is only up 3% while the S&P 500 and Nasdaq 100 are each up 13% and 33% respectively.  

For the first time since November 2022, the IWM is starting to see its 50-day moving average (MA50)  inch higher.  This puts the small-cap index in the position of potentially moving into an intermediate-term bullish trend if it can sustain prices above its MA200.

While June is a weak seasonality month for the market - especially after a strong March, April, and May - the IWM may be able to build some strength through the month as we head towards the seasonally strong July.

IWM shares are starting the day trading slightly lower only to catapult into the green by more than two percent on strength from a few of the market's worst-performing sectors including the Banks, Regional Banks, and Retail sectors.

Turning back to the IWM, the move above the MA200 signals a possible bullish breakout (Yes, A bullish signal being touted by what some of you might call a perma-bear). 

This would be the first in more than six months, signaling that the market's rally - which has been fueled by a small group of large-cap technology stocks - is about to gain some healthy breadth.

The primary target for this bullish (yes, I said bullish) move in the IWM is almost 7% higher than current prices at $195 based on the technicals leading to the February highs.

But, there's a catch.  

The current open interest configuration for the June expiration IWM options holds some resistance at $180 and above.  This resistance is the result of large call open interest strikes that start at the $180 price, continuing to $185 and $190 as pictured below:

These strongholds of call open interest often slow a stock or index's progress as they serve to identify the market's upside targets and thus a level that we're more likely to see profit-taking increase.

For now, it appears that this rally is shifting to being driven by healthier breadth and risk-taking as the market begins to participate in the "risk-on" trade.


SPDR S&P Regional Banking ETF (KRE) 

If the market is going to climb a Wall of Worry the Banks are the next sector to move higher.

Regional Banks are making a strong showing in today's rally as investors are getting more comfortable with the economic outlook.  

Over the past two weeks, we've seen several analysts lower their expectations for a hard landing, despite several data points indicating that a slowdown is still developing.

From a technical standpoint, KRE has gained monumental ground over the last two weeks as the percentage of stocks within the ETF has shifted from under to over 50%, indicating a rising tide that is starting to lift the entire sector.

Analysts backed off the sector in March with several downgrades, based on risks caused by the economic outlook.  While those risks are still present, the sector is now seeing an increase in buying among the stronger names like Fifth-Third Bancorp (FITB), PNC Financial Services Group Inc (PNC), and Huntington Bancshares Incorporated (HBAN).

We'll dive into the sector a little deeper tomorrow with some longer-term strategy ideas.  Until then, I'm eyeing July 21st expiration calls on the KRE using the MA50 as a stop-loss trigger.

The post The broad market just made a shift to the upside appeared first on Penny Hawk.

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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