ETF Market Trends: Shorting The Small Cap ETF (IWM)
Written by Lawrence on November 13, 2009
It was a day of bleeding for the general stock market yesterday with significant losses across many sectors. Here, we highlight a short side play for short term traders who wish to capitalize the possible correction in the stock market over the few days to weeks. The small caps ETF (IWM) has been under-performing the larger cap ETFs (QQQQ, SPY etc) for some time and is now offering a low risk-reward trade on the short side.
As shown in the chart, IWM registered a double top formation in mid-Oct, trended down and found support at $56 in early Nov. Since then it has moved up steadily to the 20-day and 50-day SMA but was not able to break above these levels. Yesterday, IWM closed sharply lower on increased volume, cutting it below both moving averages. The price action portends a bleak technical picture for the near term as the ETF has traced out a lower high (compared to the mid-October high at about $62) and closed decisively below the two short term moving averages. Traders may want to enter short positions at current levels while placing a tight stop just above yesterday’s high. The downside price target is $56, which coincides with the near term support established in early Nov.
Be careful out there.
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