The act of finding “confirmation” on a PnF chart is sometimes more of an art than a science. If you ask any of the NDW analyst team what exactly makes a stock look strong/weak, all of us will undoubtedly point to the technical attribute system as our main guide… but after that each of us have smaller unique details learned over years of looking at various technical pictures. Some will build a weight of the evidence based on patterns, others will be more reliant on specific relative strength relationships, and some will be based on risk/reward ratios build on ranges of support and resistance points. Regardless, many of us will point to a consistent string of signals in one direction or the next to help act as confirmation of a technical picture. Remember, a “buy” signal occurs when price action moves above a point of old resistance (meaning increased demand) and a sell signal occurs when price action moves below a point of old support (meaning increased supply.)

Not every buy signal will be worth taking (likewise for every sell signal…) but the terminology gives us a clue as to who might be in control in the intermediate term…. Buyers or sellers. Remember, the name of the game when judging a technical picture is typically building a weight of the evidence- judging the strength of demand can help us predict where a name might be heading over our investment horizon. Most of the analyst team will look to see multiple signals of the same type to help confirm that price action is consistent. To zoom out (and save a lot of time…) we can utilize indicators to help us gauge the overall technical picture of many different stocks. ^BPMSNYSE & ^BPMBNYSE measure the percentage of NYSE listed stocks trading on multiple sell signals and multiple buy signals, respectively. Included below is the default chart for ^BPMSNYSE, which reveals that now only 20% of the NYSE is trading on multiple sell signals after reversing down last Friday. This is mostly due to an uptick in small & mid cap performance/participation, a topic discussed more in today’s featured article. Roughly 26% of the universe trades on multiple buy signals.

You are able to go and screen through different universes in NDW’s security screener and select stocks that are trading on multiple signals. Below is a screenshot of the screener tool (note you can also run this exact screen in the new, screener beta version) that highlights the 44 different S&P 500 stocks trading on a pair of buy signals that also hold a perfect 5/5 TA score. It is worth noting that prudent screens won’t rely solely on what signal a stock is currently trading on, but applying buy signal criteria can be a useful qualifier to help thin down a larger list of strong options you’re looking to choose from.

2025 has been another solid year for financial markets, with large caps once again leading the way to the upside. However, close behind them have been small caps, with the 14.4% YTD return for the Russell 2000 (RUT) trailing closely behind the 16.1% gain for the S&P 500 (SPX). While mega caps have shined bright over the last several years, another player will inevitably take over the spotlight. With small caps seeing rallying hard over the last several months, it is their turn be the star of domestic equities in 2026?

This year's gains have resulted in significant technical improvement for the iShares Russell 2000 ETF (IWM) chart as it trades back at all-time highs. IWM regained near-term relative strength versus the market (SPXEWI) in September, allowing it to possess a strong fund score of 4.43. While small caps pulled back in October, the fund has since reversed back into a column of Xs while breaking through a double top at $255 for its second consecutive buy signal. Additionally, this improvement in price has also seen follow through from participation indicators, with the bullish percent for the S&P SmallCap 600 (^BPSPSML) reversing back to healthy levels near 60% after dropping steadily in September and October.

Small caps sit closely behind large caps not only by performance but also in terms of relative strength. IWM now holds a fund score within 0.75 points of the iShares S&P 500 ETF (IVV), marking the smallest gap in strength between the two funds since early 2023. One knock against small caps has been the inconsistency of the group, often seeing sharp and unstained rallies in either direction, as seen in the movement of IWM’s fund score. For investors to have further confidence in the group, small caps need to hold onto consistent strength next year, as rebounds have been followed by slowdowns in recent years.

One narrative behind the recent improvement of small caps is that a decline in rates served as a tailwind for smaller rate sensitive companies that have a greater reliance on borrowing and a higher exposure to floating rate debt. The ten-year treasury yield (TNX) is down 40 basis points from its peak in May, during which the Russell 2000 gained 24.7%. The ten-year yield was previously on four consecutive sell signals and trading in a negative trend, but action last week saw the index break a double top at $42 to flip its trend back to positive, creating potential interest rate pessimism for the small cap trade.

While higher rates would undoubtedly hurt small caps, large caps (green line) have displayed a stronger negative correlation to rates than small caps (blue line) over most of the last several years, as seen in the graph below. Said plainly, a change in interest rates has not coincided with more movement for small caps compared to large caps, suggesting a rise in rates might not doom small caps to underperform large cap stocks. Additionally, there are other reasons to be cautiously optimistic about smaller stocks.

In the second half of this year, small caps have thoroughly outperformed large caps, with the Russell 2000 gaining 17.3% compared to a respectable 10% for the S&P 500. That puts RUT on track to beat SPX for the fourth consecutive back half of the year. While the index’s second half momentum hasn’t translated into continued relative strength over full years recently, a strong latter half from RUT has historically been a positive sign for the small cap index. Specifically, the Russell has averaged an 8.1% next-year gain when it underperformed the S&P 500 over the last six months of the previous year. Meanwhile, the index has averaged a much heartier 12.2% return next year when it outperformed SPX over the previous six months, serving as a positive sign for small caps as we look ahead to next year.

Large caps continue to be the dominant force of the market, remaining the size group with the most relative strength. However, that isn’t to say other groups aren’t worth keeping an eye on, especially as small caps enter next year with some steam behind them. Should the Russell 2000 hold up rather than breakdown, small caps would deserve a place in most investors’ portfolios in 2026.

Daily Option Ideas for December 15, 2025