Equity bulls and bears are locked in battle. Until a couple of weeks ago, bulls were in the driving seat. Bears have had some opening of late, with increasing odds of more success in days/weeks to come.
 

The sell-side continues to wax enthusiastic about small-cap earnings for next year. If their aggressive optimism comes through, then S&P 600 companies will have grown operating earnings a whopping 45.4 percent in 2026 to $97.72. If past is prologue, this can only be taken with a grain of salt, and small-cap stocks are reflecting that.

Early May last year, this year’s earnings were expected to grow 21.8 percent to $102.88, even as 2024 was expected to come in at $84.49 at the time. When it was all said and done, 2024 finished with $61.86, down five percent from 2023, and, with the 3Q25 reporting season winding down, 2025 has thus far been revised lower to $67.21 (Chart 1).

These analysts are notorious for starting out optimistic and then bring out the scissors as time progresses. This is how 2025 is evolving. The revision trend for next year, too, is down, as the consensus was $106.48 in February this year, but overall, estimates are holding their ground. Stocks beg to differ.
 

Small-cap bulls had a great opportunity to build on a major breakout, but they came up short. A year ago in November, the Russell 2000 retreated after ticking 2466. Three years before that, in November 2021, the index rallied to 2459 and reversed lower. This year, on 18 September, those highs were taken out, tagging 2470 intraday. In the subsequent weeks, the Russell 2000 then reached a new high of 2542 by October 15^th before going sideways.

In the week before, the sideways action resolved with a breakdown, losing 1.9 percent for the week to 2433 – back below the triple highs. Last week, the Russell 2000 lost another 1.8 percent to 2388, with Friday’s intraday low of 2345 finding bids above crucial horizontal support at 2300. If bulls can regroup here and strongly put their foot down, then the best they can hope is a rally toward the triple highs; the 50-day moving average at 2450 lies around there as well, not to mention the underside of a broken trendline from April when on the 9^th the Russell 2000 bottomed at 1733 (Chart 2). Odds favor that this test – if it comes to that at all – will fail.
 

It is possible smart money is beginning to leave small-caps while the going is good. In October, the Russell 2000 was up 1.8 percent, although it was up as much as 4.3 percent at its high on the 15^th. The index had been relentlessly rallying since its April bottom, with October the sixth up month in succession. October showed that longs were finally getting tempted to lock in their gains. November-to-date, the Russell 2000 is down 3.7 percent.  

Concurrently, margin debt set a new high in October, rising to $1.18 trillion. In April, margin debt bottomed at $850.6 billion. Since that low, it has jumped 39.2 percent. The Russell 2000 and margin debt tend to have a strong correlation. If the red line, which is November’s data, in Chart 3 holds up, then this likely will begin to get reflected in the green bars in the coming months. Once the vicious cycle sets in motion, the index likely comes under more downward pressure.
 

The pressure to lock in gains is also getting reflected in large-cap indices.  

The S&P 500 bottomed on 7 April at 4835. On 29 October, it hit 6920 before coming under selling pressure, which ended on 7 November at an intraday low of 6631, with the low breaching the 50-day intraday but saved by close. The last time the index closed under the average on a closing basis was in the last trading session of April. The average was once again tested last Friday when intraday the S&P 500 ticked 6647, but once again bulls showed up in defense and rallied the index to close the session at 6734.

If this positive momentum continues in the sessions ahead, then bulls’ mettle will be tested at 6750s, which is not that far away, and then at 6850s, with the latter representing trendline resistance from last month’s high (Chart 4).

The next time the 50-day gets tested, it is likely the bears will get the upper hand. They have made some progress in the last three weeks, although they are yet to inflict a lasting damage. In the week the S&P 500 registered a new high, a gravestone doji showed up on the weekly; this was then followed by a 1.6-percent drop, with the 50-day refusing to yield. The average remained intact last week, but the week’s rugged bull-bear duel resulted in a weekly spinning top.
 

There are similar dynamics at play on the Nasdaq 100, which recorded its fresh intraday high of 26182 on 29 October. The subsequent drop brought the tech-heavy index to 24604 by the 7^th this month; that was when the 50-day was tested and breached, but only intraday. This occurred again last Friday when the index tagged 24535 intraday in breach of the average but by close it reversed higher to close at 25008.

Friday’s reversal was not enough to stop the Nasdaq 100 from losing 0.2 percent for the week – a back-to-back down week (Chart 5). Three weeks ago, when a new high was reached, the week finished with a weekly shooting star. Bulls have been on the defensive since. But for tech bears to begin to really get going, they will have to not only recapture the 50-day but also horizontal support at 24200s. In the last couple of weeks, bids showed up 300-400 points above 24200s. So far so good for the bulls, but it is the bears that probably have a slight edge here. This also applies to the small-caps.

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