Saturday, January 4, 2014

IWM Russel 2000 ETF Weekly Chart Overbot Rising Wedge Negative Divergence Price Extended

A television pundit is telling everyone to buy IWM with both hands. Instead, run from it. IWM is the ETF for the small cap RUT so the RUT and IWM charts are the same. The overbot conditions, rising wedge and negative divergence (red lines) say the top is in and 2014 will likely be a tough year for small caps. Small caps have enjoyed a stellar run for a couple years so all good things do come to an end. Interestingly, seasonality-wise, small caps should be bullish this time of year, however, as illustrated on this site over the last year, many relationships and seasonality factors have broken down since the Fed has destroyed all price discovery in the markets. No one really knows how much fluff exists under the markets due to all the Fed and other central banker money-printing.

Tech and small caps are typically the market leaders and the year begins with these leaders in retreat. The red lines show universal negative divergence across the board. The neggie d, rising wedge and overbot conditions should create a spank down that may be of epic proportions. Price is extended above the moving averages requiring a mean reversion. The indicators show that there is no longer any need for price to print a new high again. It is very possible that small caps have printed their highs for the year already even though the year is only a few days old.

It comes in handy for television cheer leaders, perhaps in collusion with the fund houses, to pump it so it can be dumped to Joe Retail, who shows up like a sap at all these tops to hold the bag. IWM has printed its top, or will perhaps print its top for the year, during January. Exit and take profits if long and move on even if this flies in the face of seasonality. Any rallies in small caps can be shorted. An attractive strategy is to exit IWM by scaling out in chunks moving forward, and to roll those moves into a long TWM position. TWM is the inverse ETF for the RUT and small caps (TWM moves higher as small caps move lower). The TWM chart is the mirror image of the IWM chart above. TWM is positively diverged across the board, currently at a price of 12.16, so it can be scaled into here forward and is a very attractive long play. The chart above says the market bears are ready to growl moving forward. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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