In this video, Dave shares five charts from his ChartList of market ratios that investors can use to track changing market conditions through 2025. If you want to better track shifts in market leadership, identify where funds are flowing, and stay on top of evolving market trends, make sure to include this ChartList in your weekly market analysis routine!

This video originally premiered on January 21, 2025. Watch on StockCharts’ dedicated David Keller page!

Previously recorded videos from Dave are available at this link.

Our strategy at EarningsBeats.com just simply makes good common sense. If you want to find the best earnings reports BEFORE they’re reported, follow relative strength. I’ve explained this many times, but let me do it again. Wall Street firms talk to management of companies throughout the quarter until four weeks before the company’s quarter ends and the extended period leading up to when a company makes its earnings announcement to the public. This prohibits anyone from gaining insider information before it’s released to the public.

Following the price action is, in some ways, gathering information prior to quarterly reports being released. But it’s legal. It provides us a sense of what the big Wall Street firms believe about a company’s prospects and those firms communicate frequently with management teams during “non-quiet periods”.

During past quarters, I’ve done studies on how company’s report earnings given their relative strength status among peers. It’s been quite obvious to me that if you are a relative leader in price performance on your charts heading into an earnings report, then odds are much greater that the company will release strong results. It’s definitely no guarantee, but in trading, we’re looking for clues that boost our odds. After 40 years of investing/trading, I’m not aware of ANY strategy that works all the time.

Bank Earnings

JP Morgan Chase (JPM) posted great results, but it was very easy to assume great earnings were coming. Why? Well, look at the chart and check out the relative strength line, which hit a 52-week high in December, the last month of Q4:

This is the definition of a leading stock within a leading industry group. Those bottom two panels are as important a clue as anything I’ve seen in determining whether a company will beat its revenue and earnings estimates. In the case of JPM, this revenue and earnings beat led to higher price action, but that’s not always the case. Therein lies the reason why buying leading relative strength stocks will not always mean a gap higher in price. There’s this thing called, “buy on rumor, sell on news” that can result in selling after a hugely bullish revenue and earnings beat. But the beats tell me to add JPM to a watch list and pounce on the buy side when it’s appropriate (breakout, pullback to support, etc.).

Our last EB Digest newsletter article from Wednesday, January 15th featured another financial stock that looks quite similar to JPM in terms of relative strength and being a leader in a leading industry group. Check out Interactive Brokers Group (IBKR), which will report its earnings on Tuesday after the closing bell:

IBKR has been strong, gaining 114.45% over the past year, but it’s relative strength keeps pushing higher and higher. It’s also a part of a very strong investment services industry group ($DJUSSB). I see another HUGE earnings report coming on Tuesday. I’m not sure whether it gaps higher or not, but if revenues and earnings beat consensus estimates, the IBKR will be saved onto a Watch List (for us, that means our Strong Earnings ChartList, or SECL). Then we could consider buying on an after-earnings pullback sometime down the road.

Weekly Market Recap

Every weekend, I recap the prior week’s action and today’s was quite interesting. After all, what do the inflation folks cling onto now? We just saw both December Core PPI and December Core CPI come in below expectations and the 10-year treasury yield ($TNX) dropped like a rock. Meanwhile, we’ve now seen the yield curve uninvert, leading to strength in banks ($DJUSBK). For a discussion about all of this, be sure to check out our YouTube video, “The Ghost of Inflation? Market SOARS on Tame Inflation Data”. While you’re there, please help us by hitting the “Like” and “Subscribe” buttons. Leave a comment and let me know if you agree or disagree with my discussion.

EB Digest – FREE Newsletter

If you’re not already an EB Digest subscriber, please register now. It’s completely FREE with no credit card required and it’s simple to sign up. REGISTER HERE to enter your name and email address and, on Tuesday, I’ll send you yet another leading stock in a leading industry group poised to deliver BLOWOUT earnings results when they report.

Happy trading!

Tom

When I look back at leading industry groups for the past day, week, month, 3-month, 6-month, and 1-year periods, only one industry group has been among the Top 20 industry groups for each of those 6 different periods. It’s a group that I liked heading into 2024 and it’s a group that I still like in 2025.

Banks ($DJUSBK).

If you take a look at how banks have kicked off earnings season, then it probably makes a lot of sense why they’re so in favor. Let’s look at the bigger banks that reported quarterly earnings since Wednesday:

• JP Morgan Chase (JPM): 4.81 vs. 4.03 (actual vs. estimate)
• Wells Fargo (WFC): 1.42 vs. 1.34
• Citigroup (C): 1.34 vs. 1.25
• Bank of America (BAC): .82 vs. .77
• PNC Financial (PNC): 3.77 vs. 3.30
• US Bancorp (USB): 1.07 vs. 1.06
• M&T Bank (MTB): 3.92 vs. 3.70
• First Horizon (FHN): .43 vs. .38
• Truist Financial (TFC): .91 vs. .87
• Huntington Bancshares (HBAN): .34 vs. .31
• Regions Financial (RF): .59 vs. .55
• Citizens Financial Group (CFG): .85 vs. .83

That’s the 12 largest banks that reported quarterly earnings last week and every single one of them beat EPS expectations, but JPM did so by a MILE! This is what happens when the yield curve uninverts and the net interest margin widens for banks. I’ve said on many occasions that this is the group that will benefit immensely from an improving economy and a lower fed funds rate.

Here are the charts for banks ($DJUSBK) and the bellwether JPM:

Banks:

The most telling part of the story on this chart is told in the bottom 2 panels. Once the long-term yield began to turn higher vs. the short-term yield, banks began to significantly outperform the benchmark S&P 500 in anticipation of the strong earnings that you can see above the chart. And it just makes common sense as the net interest margin for banks can only go up with this type of interest rate environment. That’s the fundamental side, which is certainly important. However, more important are the charts, and this one remains in a very bullish pattern. Currently, we appear to have the right side of a potential cup forming. The PPO is coming off a centerline test and is gaining bullish price momentum. The AD line is back near its 52-week high. I see banks going higher from here, though we do need to see price break out above the high from late November to confirm. Our primary indicator, the combination of price action and volume, suggests trend continuation.

JPM:

This is the PERFECT example of a stock that we like to own. JPM has gained 59.57% over the past year and it’s clearly a leading stock in a leading industry group. This is the key element that powers our portfolios – lining portfolios with leaders. We started our Model Portfolio on November 19, 2018, in the midst of the trade war and a cyclical bear market. 6 months later, we started our Aggressive Portfolio on May 19, 2019. Check out our stellar performance, especially vs. the benchmark S&P 500:

The Model Portfolio’s 289% advance vs. the S&P 500’s 123% advance. That’s crazy and when you consider what we’ve had to navigate these last 6+ years, it’s even crazier! We’ve endured the 2018 trade war and resulting cyclical bear market, the 2020 pandemic and resulting cyclical bear market, and the 2022 cyclical bear market, along with the worst inflation since the 1980s. That’s 3 bear markets, each falling 20% or more, in just over 6 years. No one consistently outperforms the benchmark S&P 500 like this, unless you follow our time-tested portfolio strategies. They don’t outperform every quarter (who does?), but these 6-year results speak for themselves.

Q4 Earnings

Earnings drive our portfolios. A company will never be included in our portfolios UNLESS it beats its latest quarterly revenue and EPS estimates. This isn’t a preference, it’s a MUST.

Earnings last week were, in most cases, WAAAAAY ahead of consensus estimates. Bank stocks have kicked this earnings season off in a very bullish way. But there’s another group, and you won’t believe which group it is, that is setting up to deliver BLOWOUT quarterly results, most likely better than banks. I’ll give you the group and one of its key stocks in our Tuesday EB Digest newsletter. I believe this elite company is set to report revenues and earnings way above current expectations. If you’re not already a FREE EB Digest subscriber, simply CLICK HERE, enter your name and email address, and join the tens of thousands of traders/investors around the globe! Make a difference in your trading in 2025!

Happy trading!

Tom

Energy Replaces Technology

At the end of this week, 1/17/2024, the Technology sector dropped out of the top 5 and will be replaced by Energy. The ranking in the top 5 has also changed. XLY is still number one but XLF raised to the #2 spot, pushing XLC down to #3.

XLI rose to #4 and, as said, XLK dropped out of the top 5 to #6 while XLE moved up to the #5 spot entering the portfolio.

1. XLY – Consumer Discretionary
2. XLF – Financials
3. XLC – Communication Services
4. XLI – Industrials
5. XLE – Energy
6. XLK – Technology
7. XLU – Utilities
8. XLRE – Real Estate
9. XLP – Consumer Staples
10. XLV – Health Care
11. XLB – Materials

I started adding the ranking for all sectors so it will be easier for us to monitor which sector or sectors are picking up and make a chance to enter the top 5.

Weekly RRG

On the weekly RRG, XLY, XLC, and XLF remain firmly on the right-hand side of the graph despite their loss of relative momentum, which is causing the tails to roll over.

XLI has now crossed over into the lagging quadrant while XLE has started to hook back to the right on the edge of the lagging and the improving quadrants. The Technology sector remains inside the improving quadrant but is not able to make a real push for leading.

Daily RRG

The bigger shifts become visible on the daily RRG. XLE shoots into the leading quadrant while Technology moves opposite and enters the lagging quadrant. Combining these moves with the weekly RRG has caused the switch of positions for these two sectors.

The improvement of Industrials and Financials has pushed them up in the ranking while the weakness of Communication Services led to a drop, while still inside the top 5.

The strength of Consumer Discretionary remains, mainly from its strong position on the weekly RRG. The curling up of the daily tail will only help the sector remain inside the top 5.

Consumer Discretionary

The strong move higher this week could well establish a higher low and confirm the existing uptrend. Despite a small loss of relative momentum, with the green JdK RS-Momentum line dipping, the RRG lines remain firmly above 100, keeping the sector inside the leading quadrant.

Financials

This week’s strong move higher took XLF back above the rising support line which it threatened the last few weeks. The higher low is now in place and the raw RS-Line got a push in the back and bottomed out around the breakout level from the sideways range.

Communication Services

This sector held up well but is still back inside the boundaries of the rising channel. I am not the biggest fan of such moves but stepping aside and looking with a fresh eye this may well evolve into a flag-like pattern. Following the RRGv1 strategy, this is still one of the stronger sectors.

Industrials

Price bottomed out exactly against the rising support line after completing a small bottom formation. It now has plenty of upside room within the rising channel, and the RS line has put in a higher low, albeit shallow.

Energy

The Energy sector is the new kid on the block. On the price chart, XLE jumped from the lower boundary and is now underway to horizontal resistance around 98.50.

The raw RS-Line remains within the boundaries of its declining channel, keeping the weekly tail on the left-hand side of the RRG plot. The recent strength in the sector pushed the daily tail deep into the leading quadrant, far ahead of all other sectors. The combination of weekly and daily tail positions pushed XLE above XLK, entering the top 5 portfolio.

Performance

The performance of the best 5 sectors at the end of last week was 2.73% vs. SPY 2.21% (measured against the start of this experiment), hence a 0.52% outperformance. I will update the portfolio, adding XLE and removing XLK, against the opening prices of next week (which will be Tuesday!!!).

A note on weights

So far I have used equal-weight positions for this portfolio of the best 5 sectors. But while doing more research and running more tests I realized that that is not the correct way to do it.

Don’t get me wrong, the strategy works and the outcomes using equal-weight positions are historically positive, but there is a flaw.

This is best explained using the technology sector as an example. At the moment XLK makes up 31.6% of SPY.

So when I add XLK to the portfolio at 20% I am still UNDERWEIGHT 10% against the benchmark. In other words, when XLK is in the top 5, meaning it is one of the best 5 sectors, in the portfolio I am still 10% behind the benchmark and XLK is not able to contribute to the performance as much as it should.

On the other end of the spectrum is XLRE at 2.1% of the benchmark. So when I add that sector at 20% I am almost 10x overweight.

Compare that to the 10% underweight for XLK, and it’s not hard to understand that such a weighting scheme causes all kinds of shifts in this strategy’s risk-reward profile.

For now, I’ll continue with the equal weight scheme while working on a more dynamic weighting scheme based on the benchmark weights of the sectors that made it into the top 5.

Have a great weekend and #StayAlert. This week’s article is coming from Tampa, FL where I attended the CMTA mid-winter retreat. Next week I will be working from the Stockcharts.com office in Redmond, WA –Julius

Mid-caps show leadership and were the first to trigger a breadth thrust. Stocks surged this week with mid-caps showing the highest participation rate. Chartists can quantify the participation rate and identify breadth thrusts using the percentage of stocks above their 20-day SMAs. We will analyze these indicators for six broad indexes and show the breadth thrust for the S&P MidCap 400.

Chart Link

The CandleGlance charts above show the percentage of stocks above their 20-day SMAs for the S&P 500, S&P 100, Nasdaq 100, S&P MidCap 400, S&P SmallCap 600 and S&P 1500. We can identify the leaders and the laggards by comparing values. Mid-caps are leading as S&P MidCap 400 Percent Above 20-day SMA ($MIDA20R) surged to 76 percent (blue circle), the highest of the six. This means 76 percent of its component stocks are above their 20-day SMAs. This is a big change because this number was below 10% in mid December. Small-caps are lagging as $SMLA20R finished at 64.17 percent (pink circle). Everything else is in between.

Chart Link

S&P MidCap 400 Percent Above 20-day SMA ($MIDA20R) triggered a breadth thrust, which was preceded by a small bullish divergence. The chart above shows $MIDA20R in the top window with the oversold line at 10 percent (pink) and the thrust line at 70 percent (blue). A move below 10 percent marks a downside extreme that signals an oversold condition (pink shading). Stocks, however, can become oversold, and remain oversold. Therefore, we need to wait for an upside catalyst. A subsequent move above 70% (blue dashed lines) shows a participation thrust, which means the vast majority of component stocks participated in this advance. Broad participation is bullish. $MIDA20R was the first of the six to cross above 70 percent.

At TrendInvestorPro, we pointed out oversold breadth in December and featured the divergence in Tuesday’s report. A divergence forms when the underlying index ETF (MDY) forges lower lows and the indicator forms higher lows (blue lines). MDY fell from mid December to mid January (lower lows), but fewer stocks within the index moved below their 20-day SMAs during this timeframe. Put another way, more stocks held above their 20-day SMAs. Divergences in March and October 2023 also preceded breadth thrusts.

This week at TrendInvestorPro we covered six Market Regime charts on Wednesday and highlighted seven leading ETFs om Friday’s report/video. Leadership is coming from the middle of the market, and specifically from three sectors. Click here to take a trial and get immediate access.

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So far this has been a fairly entertaining start to the new year!  The S&P 500 started off with a bounce to 6050, pushed briefly below our line-in-the-sand level of 5850, then finished this week with a retest of 6000.  While the VIX remains fairly low relative to historical levels, it feels as if our “emotional volatility” remains pretty elevated!

In recent interviews for my Market Misbehavior podcast, I’ve asked top strategists like Adam Turnquist of LPL Financial what they are expecting as we progress through Q1 2025.  I’m getting some bullish outlooks as well as more measured expectations, which reminds me that there are plenty of potential outcomes that could play out over the next six to eight weeks.

I have to admit that I was definitely surprised at the severity of this week’s sudden rally to retest the 6000 level.  Friday’s surge completed one of the most bullish weeks we’ve seen in recent history, forcing the S&P 500 above trendline resistance (pink in above chart) based on the head and right shoulders of the head and shoulders pattern.  Does this mean the pullback phase, and we are moving on to new all-time highs in February?  Or was that a “dead cat bounce” before another down leg begins next week?

Today, we’re using what’s called “probabilistic analysis” to consider four potential paths for the S&P 500 between now and early March.  As I share each of these four scenarios, I’ll describe the market conditions that would likely be involved, and I’ll also share my estimated probability for each scenario.  

By the way, we last ran this analytical process on the S&P 500 back in October 2024, and you won’t believe which scenario actually played out!

And remember, the point of this exercise is threefold:

1. Consider all four potential future paths for the index, think about what would cause each scenario to unfold in terms of the macro drivers, and review what signals/patterns/indicators would confirm the scenario.
2. Decide which scenario you feel is most likely, and why you think that’s the case. Don’t forget to drop me a comment and let me know your vote!
3. Think about how each of the four scenarios would impact your current portfolio. How would you manage risk in each case? How and when would you take action to adapt to this new reality?

Let’s start with the most optimistic scenario, with the QQQ achieving a new all-time high over the next six to eight weeks.

Option 1: The Very Bullish Scenario

What if the S&P 500 resumes the uptrend phase from September through November of 2024?  The very bullish scenario would mean the SPX pushes above the previous all-time high at 6100 and does not look back.  Trump takes off and instead of shocking the market with fears of inflation, his new policy decisions represent a more measured approach to tariffs.  The Magnificent 7 names resume their leadership role, earnings season is a blowout blast of bullishness, and the S&P 500 hits 6500 before February 1st.

Dave’s Vote: 10%

Option 2: The Mildly Bullish Scenario

Perhaps the Magnificent 7 stocks don’t return to new all-time highs, but continue to remain rangebound over the next month.  Value sectors like financials and industrials take on a leadership role, and small caps finally begin to outperform their large cap cousins.  Trump’s early policy decisions still feel inflationary, and as a result, investors are hesitant to take on more risk until we get more clarity.

Dave’s vote: 30%

Option 3: The Mildly Bearish Scenario

What if last week was a countertrend move higher, often known as a “dead cat bounce”, and over the next few weeks we see another down leg for the S&P 500?  There are notable breakouts in the value sectors, but the mega cap growth trade still doesn’t take off.  Inflation fears increase as the new President takes office, and investors hang on every economic release for signs of optimism.  The Mildly Bearish scenario would mean a retest of the January swing low around 5800, and we begin the month of March wondering whether 5800 will hold this time around.

Dave’s vote: 50%

Option 4: The Super Bearish Scenario

We always have to consider the doomsday scenario, where conditions deteriorate much more quickly than expected.  Earnings season is a bust, Trump’s new administration lights up tariffs, and inflationary fears lead to low confidence in the Fed’s ability to take decisive action.  The S&P 500 pushes down to the 200-day moving average, and after a brief bounce, drops down to around 5500 by the end of February.

Dave’s vote: 10%

What probabilities would you assign to each of these four scenarios?  Check out the video below, and then drop a comment with which scenario you select and why!

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.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.  

The author does not have a position in mentioned securities at the time of publication.    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.

As advancements in medical technology continue to shape the healthcare landscape, DexCom, Inc. (DXCM) stands out with its innovative continuous glucose monitoring solutions. Recent price action suggests that DXCM’s stock price has triggered a potentially new bullish run. In this article, I will examine the technical and fundamental factors behind this positive outlook and outline a risk-defined options strategy — all identified via the OptionsPlay Strategy Center within StockCharts.com.

After consolidating between $75 and $80 over the past two months, DXCM’s stock price recently broke out of this trading range with impressive relative strength.

• Range Breakout. The stock’s breakout above $80 marks a decisive breakout from its consolidation zone.
• Outperformance. The breakout has been coupled with outperformance to the S&P 500.
• Upside Target. Given the breakout, there is potential for DXCM’s stock price to fill the gap up to the $107.50 level.

FIGURE 1. DAILY CHART OF DXCM STOCK. The stock price traded between $75 and $80 since the end of November. DXCM recently broke out of its consolidation zone and traded above $80.Chart source: StockCharts.com. For educational purposes.

Beyond the charts, DXCM’s fundamentals support its premium valuation:

• Premium but justified. While trading at 39x forward earnings, DXCM’s superior growth expectations and higher net margins than peers suggest that this valuation is justified.
• Potential for substantial upside. Robust demand in the continuous glucose monitoring market and DexCom’s leadership position the company to capitalize on ongoing trends. The combination of strong growth prospects and healthy margins provides the potential for further appreciation.

Options Strategy

Based on this bullish thesis, the OptionsPlay Strategy Center highlights a bull put spread.

• Sell: February 28, 2025, $84 Put at $5.40
• Buy: February 28, 2025, $77 Put at $2.42
• Net Credit: $2.98 per share (or $298 total per contract, since each contract represents 100 shares)

FIGURE 2. DXCM BULL PUT SPREAD RISK CURVE.

Trade Details

• Maximum Potential Reward: $298
• Maximum Potential Risk: $402
• Breakeven Point: $81.02
• Probability of Profit: 58.58%

This strategy benefits from time decay and a bullish outlook, providing limited risk and a defined reward. At expiration, profits are earned if DXCM’s stock price remains above the breakeven level.

Unlock Real-Time Trade Ideas

This bullish trade in DXCM was identified using the OptionsPlay Strategy Center within StockCharts.com. The platform’s Bullish Outperform scan (see below) automatically flagged DXCM as the best candidate for selling a Bull Put Spread out of the many stocks currently outperforming the market, then structured the optimal options trade — helping you save hours of research.

FIGURE 3. BULLISH OUTPERFORMANCE SCAN. DXCM was identified as a candidate for a bull put spread.

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

•  Automated Market Scans. Quickly discover high-probability trading opportunities based on technical and fundamental signals.
• Optimal Trade Structuring. Receive tailored, real-time options strategies for your market outlook and risk tolerance.
• Time-Saving Insights. Make informed decisions faster, avoiding the time-consuming process of manual analysis.

Don’t miss out on your next high-conviction idea. Subscribe to the OptionsPlay Strategy Center today and unlock a streamlined approach to uncovering the best options trades—all within seconds, every single day. Let OptionsPlay be your strategic ally in navigating the markets efficiently and effectively.

The trouble with bonds is best portrayed by this long-term chart. Bonds were in a rising trend for about forty years, but the trend line was broken in 2022. This breakdown and subsequent price activity implies that bonds are going to be in a long-term falling trend for years to come. Note that the monthly PMO (Price Momentum Oscillator) is deeply below the zero line, a level that hasn’t been reached for forty years. And except for a brief dip in 2018, it hasn’t been below the zero line for forty years. Let’s go to the next chart for a closer look at what has happened after the 2022 breakdown.

After the rising trend line was broken in 2022, the first significant formation was a bullish falling wedge (green lines), a formation that we normally expect will resolve to the upside, which it did. After the falling wedge breakout, a bearish rising wedge eventually formed (purple lines), bearish because they normally resolve to the downside. It broke down in November. Now we can see horizontal support at about 108. The monthly PMO has topped below the zero line, which expresses pure weakness, so our outlook is bearish at this time.

Conclusion: Our long-term outlook for bonds is bearish. With bonds having broken a long-term rising trend line, we have to assume that they will trend downward for many years to come. We should expect occasional months-long rallies, but it is most likely that they will fail.

The DP Alert: Your First Stop to a Great Trade!

Before you trade any stock or ETF, you need to know the trend and condition of the market. The DP Alert gives you all you need to know with an executive summary of the market’s current trend and condition. It not only covers the market! We look at Bitcoin, Yields, Bonds, Gold, the Dollar, Gold Miners and Crude Oil! Only $50/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!

Learn more about DecisionPoint.com:

Watch the latest episode of the DecisionPointTrading Room on DP’s YouTube channel here!

Try us out for two weeks with a trial subscription!

Use coupon code: DPTRIAL2 Subscribe HERE!

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

(c) Copyright 2025 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.

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SCTR Ranking

Bear Market Rules

Jensen Huang may have burst the quantum computing bubble when he said it would take over 15 years for quantum computers to gain widespread use. And yet four quantum computing stocks made it to the top of the list in the StockCharts Technical Rank (SCTR) Report in the Top 10 Mid-Cap Category. You can thank Microsoft (MSFT) for this — the company is talking about becoming ‘quantum-ready’ this year.

A few weeks ago, we covered quantum computing stocks. At the time, the four stocks discussed in the article — Quantum Computing, Inc. (QUBT), Rigetti Computing, Inc. (RGTI), Quantum Corp. (QMCO), and D-Wave Quantum, Inc. (QBTS) — were in the small-cap category. In three weeks, three of these stocks crossed into the mid-cap category. The fourth stock that climbed up the ladder was IonQ, Inc. (IONQ). The four stocks that made it to the top on Thursday are displayed in the image below.

FIGURE 1. TOP 10 MID-CAP SCTR STOCKS. Quantum computing stocks clinch the top four spots.Image source: StockCharts.com. For educational purposes.

In the last article, QUBT, RGTI, and QBTS were trending higher and above their 21-day exponential moving average (EMA). Things have changed since then. IONQ also followed a similar pattern as the other three stocks (see chart layout below).

FIGURE 2. TOP FOUR QUANTUM COMPUTING STOCKS. QUBT, RGTI, IONQ, and QBTS were the top four stocks in the mid-cap SCTR category.Chart source: StockChartsACP. For educational purposes.

All four stocks gapped lower after Huang’s statement, reached a support level of a previous low, and bounced back. QUBT, RGTI, and QBTS are battling at or close to their 21-day EMA, whereas IONQ has broken above it.

Will these stocks gain enough momentum to re-establish their bullish trend? The moving average convergence/divergence (MACD) hasn’t given the signal yet. Once it does, and all four stocks break above their 21-day EMA and revisit their 52-week highs, they could continue their bullish trend.

Get Your Quantum Advantage

It’s worth creating a ChartList of quantum computing stocks even if you’re on the face. At a favorable price point, quantum computing stocks could be worthwhile investments. If you have the luxury of investing for several years, this could be a group of stocks that could add value to your portfolio. There’s also the Defiance Quantum ETF (QTUM) that will give you broad exposure to several quantum computing and other technology stocks. For more details on QTUM, check out this Symbol Summary page.

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.

There have been rumblings of “the return of small caps” for many moons, but small cap leadership has still not materialized as we kick off the new year.  Today we’ll share three charts to watch, besides the obviously important chart of the Russell 2000 ETF (IWM), to determine when a new leadership phase for small caps is imminent.

The chart of IWM appears to be in a neutral state, similar to what we’re observing in the other major equity indexes.  A long-term trendline using the October 2023 and August 2024 lows has been violated, but this week we saw a bounce right back above this level.  IWM has bounced off the 200-day moving average, as well as the 38.2% retracement of the 2024 bull market, but it still remains below its 50-day moving average.

Financials Are One of the Top Sectors in Small Caps

While the S&P 500 is dominated by the technology sector, currently comprising about 32% of the index based on market capitalization, small cap indexes tend to have a more value-tilted sector profile.  Financials are the second largest sector weight after industrials, and a boost this week from earnings wins indicates perhaps a new leadership role for this value-oriented sector.

We can see that a similar trendline for the Financial Select Sector SPDR Fund (XLF) was tested last week and held before this week’s bounce higher.  We can also observe a bullish momentum divergence over the last two months, with lower lows in price matched with higher lows in the RSI.  Finally, the daily PPO indicator recently generated a bullish crossover, indicating the trend has now reversed higher.

A Resurgence in Biotechs Could Boost the Small Cap Index

While financials have rotated higher this week, the iShares Nasdaq Biotechnology ETF (IBB) remains in a primary downtrend.  However, with IBB bouncing off support around $131, this could be a setup for a bullish price rotation.

While IBB has been pounding out lower highs since last November, the price is no longer making lower lows.  A bounce off this recent support level, followed by a successful breakout above moving average resistance, could definitely turn this chart from a chronic underperformer to a more compelling space.  And since biotechs are one of the largest industry bets in the Russell 2000, renewed strength for IBB could most likely translate to upside movements for IWM.

In the End, It’s All About the US Dollar

While those previous two charts represent large weights in the Russell 2000, our final chart represents more of a macro tailwind for small caps.  Mega cap multinational companies, such as the top weights in the S&P 500 and Nasdaq 100, generate a large percentage of their revenues outside the US.  So when they go to exchange their non-US revenues back into US Dollars, the stronger $USD chart would mean those non-US revenues are much less valuable in dollar terms.

Small cap companies tend to generate most of their revenues in the US.  Therefore, small cap stocks would not be faced with that currency headwind that could have dramatic effects on mega cap earnings in 2025.

We can see a fairly consistent primary uptrend in the US Dollar since a major low in September 2024.  As long as this chart continues to make higher highs and higher lows, the stronger US Dollar could have more and more of a negative impact on the largest US companies.  As small caps are fairly immune from this potential headwind, a continued uptrend in the US Dollar would suggest small caps could definitely outperform going forward.

At the end of the day, the chart of IWM will be the most important one to watch to gauge a potential leadership role for small caps.  The most bullish signal we could observe would be a breakout for the small indexes!  Hopefully these three charts can be used in conjunction with a thorough technical evaluation of IWM to determine whether small caps can finally take on a leadership role in the equity space.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

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.  

The author does not have a position in mentioned securities at the time of publication.    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.