Small Caps Attempting to Breakout into Stage 2 and the US Stocks Watchlist – 14 December 2023

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Small caps led higher today, with +2.78% in the Russell 2000 index. But as you can see in the daily chart above. Although, it's made a new Stage 2 breakout attempt this week. It's not yet clear of the overhead resistance zone, that's limited it's progress on multiple attempts to move higher this year, and with todays follow on move, it gapped above it's +3x ATR(21 day) level at the open, and continued higher during the day, and is now it's at the most extended point from its normal daily range that's been seen for many years. Accompanied by the percentage of stocks above their 20 day EMA in the S&P SmallCap 600 at an extreme reading of 95.17%.

Hence it's safe to say that like multiple other US indexes, that the Small Caps are now at an extended point in the short-term. However, much of the power in the Small Caps at least is coming from short-covering rallies of stocks in Stage 4B- positions, as well as some new Stage 2 breakouts, as it's been an area that's lagged so much over the last year. And thus there's a chance that it could remain extended, as on a broader, longer-term basis, the breadth in the NYSE and Nasdaq Composite Bullish Percent Indexes is still only in the upper-middle of the field at 63.49% and 55.65%. So once the short-term froth has been resolved, then there's a chance that the broad market (all US stock indexes) could finally move into Stage 2 for the first time in multiple years. Which would be an interesting start to 2024.

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Disclaimer: For educational purpose only. Not investment advice. Seek professional advice from a financial advisor before making any investing decisions.