What Do Small Caps and Semiconductors Think They See?

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The general Small Cap and the Semiconductor sectors are considered
speculative leaders to the broad US stock market.  In painting bullish
chart potentials, what do they think they see?

Small Caps: Still Bullish, But at Important Resistance

We observed a bearish pattern on the Small Caps and a bullish one on the inverse fund TWM in mid-May, noted the "kiss goodbye" to the topping pattern at the end of May, noted a precarious situation for bears in mid-July, a Bull Flag channel in early August and then the competing bullish patterns a week ago.

From the mid-July post:

"Markets are still making higher highs and higher lows.  But but but…
the markets are supposed to tank claim the bears.  Well maybe my furry
friends, but despite the negative feel of this summer, they are making
higher highs and higher lows."

Technically, the bulls continue to hold sway.  I have been beating the
drum on risk because any non substance abuser in the financial markets
must remain aware of the risk profile at all points during the ongoing
cycles, but thus far 'price' says bullish.

Today we update the IWM ETF and find a maturing Cup – complete with
Inverted H&S characteristics (it's not an H&S reversal pattern
because there was no previous downtrend from which to reverse) – that
would ideally break above the red neckline, form a Handle and move
higher to the ridiculous sounding target of the equivalent of RUT 930 or
IWM 92.











It sounds crazy, since we know the economy is decelerating and corporate
performance is slowly degrading.  But the charts (along with risk and
psych profiles) said be bullish in May and June.  Now this crazy chart
says IWM has the potential to make jaws drop on the upside.  Well,
speaking of jaws, that jawbone about to start moving in Jackson Hole
tomorrow morning will have a lot to say about that, as will the red
neckline on the chart above.

Semiconductors:  At Support

The semiconductor ETF SMH broke down through the neckline of an H&S top as noted back in mid-May:  Semi's back below a neckline… not a pleasant chart
As the spring of angst (+ price destruction) morphed into the summer of
continuing angst (+ contrarian bullishness) SMH found a bottom, painted
a nice 'W' on the chart (targeting 35+) and broke above the old
neckline.  That is now support.











Interestingly, I talked with an associate the other day who – unlike
your blogger – remains intimately involved with the semiconductor
industry and the manufacturing sector in general.  He told me that semi
is "dead in the water".

Hmmm… what does the chart above think it sees?  What does the IWM (small caps) chart above think it
sees?  Why do these charts have the nerve to think they can paint such
bullish potentials?  Well, we all know what these charts think they see;
they think they see what the precious metals that blasted upward last
week out of long-term consolidation patterns think they see; just like
the broad US and European markets we have been bullishly tracking all

They think they see a perhaps coordinated campaign by US, European and
Chinese policy makers to blow the inflationary gasket by engaging the
competitive currency devaluation sweepstakes.  Given that the risk
profile has risen notably over the summer from its previous 'contrarian
bullish' status, it could be a good idea to hear what the man has to say
(or not say) tomorrow morning before committing too heavily to a
particular viewpoint.

Bullish looking charts can after all, be broken with the flap and yammer of a jaw.