Below are highlights from the NDW Morning Update Video for the morning of 09/01. Access the the video on the NDW Morning Update Video page. 

• It was a mostly negative day for major markets over the last 24 hours (8/31). Crude oil (CL/) was the only name we typically follow to land in the green, picking up ~3% for the day to advance a handful of boxes on its default chart. Most other areas struggled. Gold (GC/) shed just over 1% for the day.
• Despite lagging for the day, gold was actually the best performer in August as it picked up just under 10%. All in all, it was a productive month for many major asset classes as all but the US Dollar landed in the black for the month. Remember, September is historical tough sledding for domestic equities, a point to keep in mind as markets look to push to new highs.
• International equities moved back into first within the broad asset class DALI rankings after briefly falling behind domestic equities during mid/late August. Both groups remain firmly entrenched at the top of the rankings as we open September. The move largely came from the hands of commodities, which managed to claw away signals from domestic representatives. All in all, the rankings continue to point towards a risk-on posture.
• Participation dropped slightly yesterday as (^BPNYSE) reversed back down into a column of O’s to 52%. Said more plainly, just over half the stocks listed on the NYSE trade on a PnF buy signal. While reversals in either direction are worth monitoring, this one seems to be a factor of normal market movement rather than a severe drop-off in upside participation.
• Other chart action was limited yesterday. Eli Lilly (LLY) fell back into a negative trend… although it maintains a high attribute score and its previous trend breaks were largely headfakes. MDT picked up ~5% after its earnings report on Tuesday morning. Keep an eye on RS relationships to see if the name can pick up further attribute points.

Small caps have long carried a reputation as the market’s most rate-sensitive corner, and for good reasons. Higher borrowing costs hit smaller companies hardest, given their reliance on floating-rate debt and outside financing. That relationship held up as recently as last year, as the 12% decline in the US Treasury 10 Year Yield Index (TNX) from May through November coincided with the iShares Russell 2000 ETF (IWM) climbing over 20% (5/21/2025 – 11/30/2025). However, that inverse correlation has pivoted sharply in recent months. Since the end of last November through the end of August, both TNX and IWM are up 18%.

The small-cap rate sensitivity has not always been consistent. From 1979 to 2000, the correlation between the Russell 2000 and the 10-year Treasury yield was strongly negative, as elevated rates during that period weighed directly on smaller, more indebted companies. That relationship flipped positive from 2000 to 2019, when declining rates coincided with a slower-growth backdrop, and higher yields tended to reflect stronger economic conditions instead of tighter financial conditions. The negative correlation came back during the 2022-2024 hiking cycle, and we saw the consequences firsthand under the old playbook

What Rate Charts Say Now

If we were simply extending the old playbook forward, the current setup should be a clear headwind for IWM. The default chart for TNX has been trending higher and now sits near multi-year highs, a textbook signal of tightening conditions. The 2-year yield (US2YR) has also moved higher on its chart, outpacing the improvement in TNX. That divergence has pulled the 2s10s spread (USYC2Y10) lower in the back half of August after the spread was unable to surpass levels seen in April and May. This action is near-term in nature, as we still have the 2-point chart trading in a positive trend with a series of higher lows. We are also nowhere near the inverted regime seen after 2022. However, we would like to see more consistency from the 2s – 10s spread, as a flattening curve has historically been an unfavorable setup for small caps.

What IWM’s Chart Says Now

IWM currently holds a fund score above 4.0, making small caps a generally favorable area. The ETF sits in a positive trend, completed two consecutive buy signals, and reached new all-time highs last month. The last few weeks saw a sharp pullback, as IWM declined by over 3% from August 14th through the end of the month. Currently, this seems to be simple consolidation after rapid improvement, as the default chart sits just below the middle of its trading band and has just reversed down into a column of Os on Tuesday (9/1).

The last few weeks of action have seen IWM decline while rates continue to rise, seeing the old playbook re-enter the conversation. On the other hand, IWM was due for consolidation after rising 20% from April 7th through August 13th, so a 3% pullback is not a major concern. While small caps might not play a major role in your portfolio right now, their direction moving forward could have some major implications for relative strength rankings.

Our DALI rankings just saw international equities move back ahead of domestic equities on the last day of August. Those two asset classes are still very close together, which might come as a surprise given the recent rebound for growth-oriented stocks in the US. However, delving underneath the hood of each asset class shows a different story. International equities have seen different areas demonstrate strength at different times throughout the year. Emerging markets rocketed higher in Q1, then developed markets showed some consistency as some other areas corrected in Q2. The last several weeks have seen emerging markets rebound alongside other growth areas globally. Meanwhile, US equities have not enjoyed the same give and take. IWM still sits on an RS sell signal against most broad international representatives like the iShares MSCI Emerging Markets ETF (EEM). Until we see some RS relationships move in favor of small caps, it will likely be difficult to get more follow through on domestic equities improvement in our DALI rankings.

The option suggestions featured here are pulled from the NDW Options Ideas tool. These are just a sample of the ideas that can be found there. The Options Idea tool contains numerous additional income and speculative plays. It also offers relative strength-based screens targeting the highest (and lowest) relative strength stocks and ETFs that have recently moved counter to their longer-term trend. To access or subscribe to the Options Ideas tool, click here.

Call

Philip Morris International (PM) Nov 20 $185 Call

Put

PDD Holdings Inc (PDD) Nov 20 $85 Put

Income

Toast, Inc (TOST) Oct 2 $31 Put