With an new administration inbound in Washington, D.C., might now be a good time to jump into small-cap stocks?

If you’ve heard this maxim based on the Presidential Election Cycle Theory, it has some truth to it. Small-caps tend to thrive after presidential elections as attention shifts to domestic issues and governance. Since 1980, the Russell 2000 has averaged a 15% return in post-election years, outperforming large-cap stocks by about 4 percentage points.

Since we’re thinking about seasonality, what about small-cap seasonality on a year-round basis? How do small caps seasonally perform throughout the year, and is it a good time to jump in now?

Let’s get straight to it, starting with a 10-year seasonality chart of iShares Russell 2000 ETF (IWM), our small-cap proxy. If you click on the link above, be sure to toggle the timescale to 10 years (the chart’s default period is 5 years).

FIGURE 1. 10-YEAR SEASONALITY CHART OF IWM. Note that November is IWM’s strongest month. The average higher close rate is the number above the bars, while the average returns are at the bottom of the bars just above the months.Chart source: StockCharts.com. For educational purposes.

Over the last 10 years, November has been IWM’s strongest seasonal month, averaging a 90% higher close rate and a nearly 6% monthly return. While December and January are seasonally tepid, February through July are consistently strong. With 2025 following an election year, investors may find small caps an attractive investment opportunity.

If you want to add the Russell 2000 to your portfolio, you’ll want to fine-tune an entry point. But how? First, examine a weekly chart of IWM to understand the larger context of the index’s current price action.

FIGURE 2. WEEKLY CHART OF IWM. It helps to pay attention to the resistance levels going back to 2020.Chart source: StockCharts.com. For educational purposes.

Look at the two resistance levels marked by the magenta and blue dotted lines. Notice the difficulty IWM experienced breaking above the first level (magenta), at $224, from the end of July to November, forming an ascending triangle. As IWM broke through that contested level, it also broke above the second level of resistance (blue line) and its all-time high at $234.50.

Having pulled back slightly after breaking through two major resistance levels, bulls aiming to add positions are probably looking for a well-timed entry point. Let’s shift to a daily chart.

FIGURE 3. DAILY CHART OF IWM. Keep an eye on the swing lows marked by the blue dashed horizontal lines.Chart source: StockCharts.com. For educational purposes.

First off, IWM’s technicals demonstrate strength, as shown by the StockChartsTechnicalRank (SCTR) line, currently sitting just below the bullish 90-level threshold. However, the two volume-based indicators—Chaikin Money Flow (CMF) and On Balance Volume (OBV)—show a stark divergence. This can indicate, among other things, that selling pressure is prominent on the institutional side, while retail investors are driving up buying pressure (institutional players have the upper hand in most cases).

As IWM’s price pulls back, be mindful of the swing lows, each marked by a blue dotted line in the chart. Though you can expect those levels to serve as support, I’d be wary if the price closes below $215. Not only would that invalidate the near-term uptrend (no longer seeing higher highs and higher lows), but it would also fall into a range muddled with historical congestion (as seen in the weekly chart).

If IWM bounces above $226 or $215, look at the volume-based indicators to see if buying pressure on both indicates bullish alignment. Direction in volume often precedes price, so keep an eye on each. Hopefully, a strong bounce on high volume will mark a well-timed entry into the index ETF.

At the Close

Small-cap stocks have a history of shining in post-election years and thriving in specific seasonal windows, like November and the spring months. But timing is everything, so add this chart to your ChartList and watch the levels and indicators discussed above. Should conditions shift favorably, you can decide whether it’s the right time to pull the trigger.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

In this exclusive StockCharts video, Julius gives a quick update on sector rotation, then examines the strength uncovered in Consumer Discretionary. He analyzes names like TSLA, AMZN, and LULU; some are in full swing uptrends, but there are also a few names that are on the verge of turning around a long (relative) downtrend.

This video was originally published on December 11, 2024. Click on the icon above to view on our dedicated page for Julius.

Past videos from Julius can be found here.

#StayAlert, -Julius

In this exclusive StockCharts video, Joe shows how to use the MACD zero line as a bias for a stock. As opposed to offering a buy signal, this Zero line level can provide insight into a market or stock’s underlying condition; Joe shows how to refine that information with other indicators. He then covers the shifts that are taking place in the sectors, and finally goes through the symbol requests that came through this week, including DIS, TSLA, and more.

This video was originally published on December 11, 2024. Click this link to watch on StockCharts TV.

Archived videos from Joe are available at this link. Send symbol requests to stocktalk@stockcharts.com; you can also submit a request in the comments section below the video on YouTube. Symbol Requests can be sent in throughout the week prior to the next show.

Tony and Grayson are back with another informative video highlighting the opportunities the OptionsPlay add-on brings to the StockCharts platform. Tony highlights income generation ideas you can find with the add on. Together, the duo also cover the strategy center, and the SharpCharts and ACP widgets.

This video premiered on December 10, 2024.

The Tuesday afternoon selloff brings the broader indexes close to key support levels. In the first half of the trading day, the S&P 500 ($SPX) and Dow Jones Industrial Average ($INDU) were trading slightly higher. The Nasdaq Composite ($COMPQ) was the leader in the morning hours. But towards the last couple hours of the trading day, all three indexes sold off.

The bigger question is how much damage two down days in a row caused. With the broader stock market indexes rising to new highs, seeing two down days in a row is a bit disappointing. But a selloff is healthy, especially as we approach the end of the year, as long as the bullish trend is still intact.

The chart of the S&P 500 and Nasdaq Composite below shows that both indexes have an upward trending 21-day exponential moving average (EMA). However, the S&P 500 is getting close to its November high, which is a valid support level. The Nasdaq has a ways to go before it reaches its November high. A closer support level is a low of the December 4 price move, a gap up.

FIGURE 1. S&P 500 AND NASDAQ COMPOSITE SELL OFF. Although the bullish trend is still in play, watch the support levels and moving average convergence/divergence (MACD) for signs of a downtrend.Chart source: StockChartsACP. For educational purposes.

The moving average convergence/divergence (MACD) in the lower panel shows that the S&P 500 is the weaker of the two indexes, technically speaking. Since October, the MACD has been relatively flat while the S&P 500 was rising. The MACD for the Nasdaq was in a slight incline while the index was rising.

The good news is that the seasonally strong part of the month is yet to come. December and January tend to do well with the Santa Claus rally, the January Effect, and the January Barometer, three seasonal patterns discussed in the Stock Trader’s Almanac. The Cboe Volatility Index ($VIX) remains low, which is another variable that supports the bullish move in equities. We should get more clarity on Wednesday after the November CPI data is released.

Precious Metals Rise

While equities were selling off, gold and silver prices started inching higher. The surge in gold prices can be attributed to China’s central bank deciding to buy gold, something it hasn’t done in several years.

Gold prices pulled back to the 100-day SMA after reaching an all-time high at the end of October. Since then, it has been trending higher and could make another attempt to reach its high (see chart of gold continuous contract below).

FIGURE 2. GOLD FUTURES TRYING TO BREAK OUT OF A RESISTANCE LEVEL. If gold prices break above the resistance level, price could make an attempt to reach its all-time high.Chart source: StockCharts.com. For educational purposes.

Tuesday’s low coincided with the 50-day SMA, and the high coincided with previous highs. You could say that $GOLD traded between a support and resistance level. A successful break above Tuesday’s high would confirm that gold prices could aim to reach an all-time high.

A few geopolitical events surfaced this week that may have contributed to the rise in crude oil prices, which saw Treasury yields rise slightly. But these could be short-lived news-driven reactions.

NVIDIA’s Slide

One stock I’ll be closely watching is NVIDIA Corp. (NVDA). The Chinese government is investigating the company for antitrust activities. NVDA closed below its 50-day SMA on Tuesday with a declining StockCharts Technical Rank (SCTR) score of 50.20. The MACD is also indicating slowing momentum (see chart below).

FIGURE 3. NVIDIA’S STOCK PRICE FALLS BELOW 50-DAY MOVING AVERAGE. In addition, the SCTR score is at 50, which indicates weak technical strength. The MACD shows momentum is declining.Chart source: StockCharts.com. For educational purposes.

A further decline in NVDA’s stock price, which makes up about 7% of the S&P 500, could lower the index’s value.

The bottom line: November CPI will be released on Wednesday morning, 8:30 AM ET. Economists estimate a 2.7% year-over-year increase while the core CPI is expected to rise 3.3%. This would dictate Wednesday’s price action.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

As the year winds down, investors are beginning to position their portfolios for the New Year. I’m considering it, and perhaps you are too.

Next year, in addition to the seasonal rotations among sectors, we have a plot twist: a new administration in D.C. likely to bring disruptive policy changes affecting the market.

The Financials sector is expected to perform well under the new administration. If that’s the case, it’s worth taking a closer look at this sector and identify which stocks to watch for potential buy opportunities. If you’re already considering financial stocks and looking to fine-tune an entry before year-end, then consider those that have pulled back or are trading in a tight, low-volatility consolidation range—prime candidates for a potential bounce.

How can you spot these opportunities? One way is to use MarketCarpets’ Bollinger Band Width setting.

On Monday, I used this tool with the Latest Value setting, which provides a score between 0 to 100. The closer to zero, the narrower the BandWidth. The narrower the BandWidth, the greater the likelihood of spotting a “squeeze” leading to a significant price move or a breakout.

FIGURE 1. MARKETCARPETS BOLLINGER BAND WIDTH SET TO LATEST VALUE. It won’t be surprising if most of the big stocks on the list with the lowest value exhibit similar patterns.Image source: StockCharts.com. For educational purposes.

If you look at the table on the right, you’ll see that the three biggest stocks with the lowest chart values are Visa (V), Mastercard (MA), and Berkshire Hathaway B shares (BRK/B). If you were to continue scrolling, the three big banks with the narrowest Bollinger Bandwidths are Bank of America (BAC), Morgan Stanley (MS), Goldman Sachs (GS), and JP Morgan Chase (JPM). For many investors, some of these shares are quite expensive. So, let’s consider that and focus on the stocks that are more relatively affordable to most readers: BAC, MS, and JPM.

Before diving into these stocks, let’s examine the sector’s breadth using a daily chart of the S&P FInancial Bullish Percent Index ($BPFINA). We’ll also compare the relative performance of the Invesco KBW Bank ETF (KBWB) as a proxy for the large U.S. banking industry against the Financial Select Sector SPDR (XLF), which represents the broader financials sector.

Sector Breadth and Relative Performance of Banks vs. Sector

The $BPFINA shows the percentage of stocks signaling Point & Figure “buy” signals. Right now, 91% of S&P financial stocks are flashing buy signals (see below).

FIGURE 1. FINANCIAL SECTOR BULLISH PERCENT INDEX. The Financial sector is bullish but potentially oversold.Chart source: StockCharts.com. For educational purposes.

While a BPI figure above 50% is bullish, above 70% signals that the sector is potentially overbought. On an industry level, the banking industry is outperforming broader financials by 11% and rising.

Bank of America

Let’s get to the stocks, starting with a daily chart of BAC.

FIGURE 2. DAILY CHART OF BANK OF AMERICA. Is the stock poised for a big move up or down?Chart source: StockCharts.com. For educational purposes.

There’s a lot here, so I’ll bullet the key points:

BAC’s technical strength, as measured by the StockChartsTechnical Rank (SCTR) is slightly declining, but at a level just below 70, it signals only slight weakness.The Bollinger BandWidth has decreased significantly, and BAC’s price is above the lower band. This doesn’t signify a squeeze as much as a low volatility pullback. But what are the chances that BAC is likely to decline further?On a relative performance scale, BAC is slightly underperforming its industry, down barely 2%.In terms of momentum, there’s a divergence between indicators: On Balance Volume (OBV) suggests high buying pressure, possibly driven by retail investors, while Chaikin Money Flow (CMF) indicates strong selling pressure, likely reflecting institutional activity.

BAC is one of the largest US banks, so I’d add it to my ChartList as a possible prospect for a longer-term investment. However, given the mixed technical signals, I consider this a wait-and-see moment, observing how price reacts at current levels and whether the OBV and CMF can align if BAC continues its move to the upside.

How does BAC compare with Morgan Stanley?

Morgan Stanley

Let’s take a look at a daily chart.

FIGURE 3. DAILY CHART OF MS. The stock’s performance, as measured by SCTR, is performing slightly better than BAC.Chart source: StockCharts.com. For educational purposes.

MS’s SCTR score, at 83, is stronger than BAC’s and close to the 90 level, which might be considered exceedingly bullish.As its Bollinger BandWidth narrows, the stock has also fallen below support, coming out of a rounding top, and looking to fill the wide gap made at the beginning of November.MS is slightly outperforming its industry peers by slightly over 3%, better than BAC’s relative performance.Selling pressure, however, is strong, and the OBV and CMF appear to align.

This appears to be a classic pullback scenario. I would add this to my ChartList, as MS is one of the biggest players in the industry, but I’d wait for a bounce and monitor a bullish reversal in both the OBV and CMF before considering a long position.

JP Morgan Chase

Finally, let’s look at the last big bank on my list: JP Morgan Chase. Below is a daily chart.

FIGURE 4. DAILY CHART OF JPM. The divergence in the OBV and CMF is something to watch carefully.Chart source: StockCharts.com. For educational purposes.

JPM’s SCTR score of 76 is declining, yet still relatively bullish.Its Bollinger BandWidth indication is similar to the two we just viewed. In JPM’s case, traders seem hesitant to commit to any direction as price settles right below the middle band. It’s as if they’re waiting for some indication to trigger movement in one direction or another. Regarding relative performance, JPM is barely outperforming its industry peers, by a little over 1%.Similar to the BAC example, there appears to be a potential, yet prominent divergence between retail buying and institutional selling, as the OBV has been climbing while the CMF has been steadily declining.

JPM is sitting in a near-term holding pattern. It’s going to break eventually. But for now, the market appears unable to commit to a given direction, and the mixed momentum signals seem to support this view. It’s best to monitor this on my ChartList and wait for stronger bullish signals and a definitive reversal to the upside before jumping in. In short, patience.

At the Close

Planning the coming year, I focused on a given sector (Financials) and used MarketCarpets’ Bollinger BandWidth setting to identify stocks with tight, low-volatility setups that might signal a breakout opportunity. This led me to BAC, MS, and JPM. While these stocks remain on my ChartList as longer-term prospects, I’m opting for a wait-and-see approach. Fine-tuning an entry is important. And while there are many ways you can do this, I just showed you one approach that might just come in handy given the right circumstances.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

In this video, Dave unveils his “line in the sand” technique to help determine when stocks in established uptrends may be near the end of the bullish phase. He’ll share specific levels he’s watching for the S&P 500, AMZN, TMUS, and KR, and also review three tools on the StockCharts platform you can use to monitor potential stop loss levels for stocks in your portfolio.

This video originally premiered on December 10, 2024. Watch on our dedicated David Keller page on StockCharts TV!

Previously recorded videos from Dave are available at this link.

Looking for options trade ideas? In this video, Tony presents some of the best options trading strategies! After discussing special 0DTE strategies, the big picture, and individual sectors and industries, Tony covers bullish and bearish ideas for stocks including NVDA, SHOP, GOOGL, META, CAT and many more.

This video premiered on December 9, 2024.

Today Carl looks at the 26 indexes, sectors and groups in a CandleGlance to see how the indexes stack up. It is clear that all of the indexes are as good as they can get. Carl warns that when things are as good as they can get, the only place left to go is down. Overbought conditions can persist, but it is certainly an attention flag.

Today Carl took us into the Semiconductor (SMH) industry group to discover how the group is weighted.

Carl also gives us his overview of the market in general and then covers the Magnificent Seven in the short and intermediate terms. Which ones are set up bullishly and which two are struggling?

Erin takes over and talks about sector rotation by going through the sector CandleGlance to see where aggressive and defensive sectors stand currently. There are clear winners and losers.

The pair finish the trading room by going through viewers symbol requests that includes looks at Palantir (PLTR) and Super Micro (SMCI).

01:22 DP Market Scoreboards

02:46 Semiconductor (SMH) Weighting

04:57 Market Overview including Dollar, Gold and Crude Oil among others

13:47 Magnificent Seven

17:31 Market As Good As It Gets

22:47 Sector Rotation

31:02 Symbol Requests

If you’d like to join us LIVE on Mondays at Noon ET, register here: https://zoom.us/webinar/register/WN_D6iAp-C1S6SebVpQIYcC6g#/registration

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Introducing the new Scan Alert System!

Delivered to your email box at the end of the market day. You’ll get the results of our proprietary scans that Erin uses to pick her “Diamonds in the Rough” for the DecisionPoint Diamonds Report. Get all of the results and see which ones you like best! Only $29/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!

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Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

(c) Copyright 2024 DecisionPoint.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

Helpful DecisionPoint Links:

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

Bear Market Rules

Despite attempts to break higher, Tractor Supply Co. (TSCO) may be setting up for a potential move lower. Recent price action and valuation concerns suggest that TSCO’s upside might be limited in the near term.

In this analysis, we’ll outline the technical signs of weakness, delve into the fundamentals that appear stretched, and review a limited-risk options strategy to capitalize on a bearish outlook. All of this was identified instantly using the OptionsPlay Strategy Center within StockCharts.com, demonstrating how subscribers can uncover similar opportunities instantly.

From a technical standpoint, TSCO has shown troubling signs:

Failed Breakout. After initially breaking out above the $290 resistance area in October, TSCO has failed to maintain any meaningful follow-through. Instead, it has slid back into its prior trading range between $265 and $290.Underperformance and Negative Momentum. This inability to hold higher ground has coincided with relative underperformance versus the S&P 500. As the stock struggles to sustain gains, negative price momentum suggests increasing downside risks.

FIGURE 1. DAILY CHART OF TRACTOR SUPPLY CO. The stock is retreating toward its previous trading range between $265 and $290. Tractor Supply is also underperforming the S&P 500, and the MACD indicates momentum is slowing down.Chart source: StockCharts.com. For educational purposes.

Beyond the chart, TSCO’s fundamentals raise questions about its valuation:

Modest Growth, High Valuation. With an expected EPS growth of just 7% and revenue growth of 4%, TSCO’s top and bottom line expansion trails its industry peers. Yet the stock trades at a hefty 25x forward earnings multiple.Slim Margins and Rising Debt. A net margin of only 7% offers limited cushion to navigate headwinds, especially as the company’s debt load increases each quarter. Paying a premium multiple for modest growth, narrow margins, and escalating leverage challenges the justification for TSCO’s current valuation.

Recent earnings announcements provide mixed signals. On the positive side, Q3 2024 net sales rose by 1.6%, and gross margin improved by 56 basis points, reflecting some operational efficiencies. The company also reported EPS in line with expectations and pursued strategic acquisitions like Allivet to bolster its pet product segment. However, TSCO faced a slight decline in comparable store sales, a 5.3% decrease in net income, and missed analyst sales estimates. Sluggish discretionary spending and higher expenses have also weighed on performance. Looking forward, TSCO must navigate a delicate balance between growing sales and managing costs—an increasingly challenging task if consumer spending remains tepid.

Options Strategy: Call Vertical Spread

To position for a potential downside, the OptionsPlay Strategy Center suggests selling a Jan 24, 2025 $285/$300 Call Vertical @ $5.70 Credit. This entails:

Selling January 24, 2025, $285 Call at $9.70Buying January 24, 2025, $300 Call at $4.03Net Credit: $5.70 per share (or $570 per contract)Maximum Potential Reward: $567Maximum Potential Risk: $933Breakeven Point: $290.70Probability of Profit: 63%

This neutral-to-bearish strategy generates premium income upfront and profits if TSCO remains below $290.70 at expiration (see strategy details below).

FIGURE 2. SELLING A CALL VERTICAL SPREAD IN TRACTOR SUPPLY CO. Here you see the strategy details of selling a Jan 24, 2025 $285/$300 call vertical.Image source: OptionsPlay Strategy Center in StockCharts.com. For educational purposes.

Unlock Real-Time Trade Ideas with OptionsPlay Strategy Center

 The bearish opportunity in TSCO was identified swiftly using the OptionsPlay Strategy Center, which is now available at StockCharts.com. The platform’s Bearish Trend Following scan zeroed in on TSCO as a candidate for downside exposure and even structured the optimal options trade in real-time.

By subscribing to the OptionsPlay Strategy Center, you gain access to:

Automated Market Scanning. Instantly discover trade opportunities aligned with various market outlooks and strategies.Optimal Trade Structuring. Receive tailor-made options strategies that consider both your conviction and risk tolerance.Time-Saving Insights. Access actionable ideas within seconds, eliminating hours of manual research and enabling more informed decision-making.

FIGURE 3. TRACTOR SUPPLY CO. WAS A CANDIDATE UNDER THE BEARISH TREND FOLLOWING SCAN.Image source: OptionsPlay Strategy Center in StockCharts.com.

Don’t miss out on valuable trading opportunities. Subscribe to the OptionsPlay Strategy Center today and streamline your trading approach. With tools designed to keep you ahead of the market, you can consistently find the best options trades and harness them efficiently every day.