While we follow the Fed announcement tomorrow, we'll closely watch Grandpa Russell's (IWM) reaction.
As the patriarch in charge of Mish's Modern Family, it's a good idea to meticulously monitor Grandpa Russell's pricing daily and weekly. IWM is also the biggest exchange-traded fund (ETF) in the small-cap category, with around $56 billion in assets. IWM's last few weeks have been characterized by price consolidation and failed attempts to make any meaningful new highs. It is trading significantly weaker than the S&P 500 Index ($SPX) and is showing substantially less strength.
Our Triple Play Leadership Indicator shows a need for more market leadership if IWM is going to break out.
Looking at the weekly chart of IWM, we can see it is barely trading above its 200-week moving average and potentially in danger of crossing below it. The weekly chart also looks like a potential head-and-shoulders, a trend reversal pattern. IWM could break the 200-week moving average and trend down further until the right shoulder is broken if this pattern is validated in the coming weeks.
The head-and-shoulders pattern would take IWM to a price in line with strong support and near pre-Covid price levels. IWM found support twice earlier this year around this area of support at 162.
IWM is widely diversified across many sectors and represents nearly 2,000 small-cap equities, so having IWM participate in any market rise is essential for long-lasting rallies. Our proprietary Real Motion Indicator (see chart above) shows that IWM's downward momentum aligns with current price action. In other words, additional price drops may be in store.
So, what does this ultimately imply for investors?
The takeaway is that you should closely watch IWM in the coming days, especially IWM's weekly closing price. Although the index has the potential to reach new highs, momentum and other proprietary indicators are warning that patience is warranted. We are waiting for a solid breakout, but the price is breaking down on the weekly chart, according to our proprietary Triple Play Leadership Indicator and our Real Motion Indicator.
To better understand where IWM is going, keep a close eye on the Triple Play Leadership Indicator and our Real Motion Indicator. Pay attention to these indicators to stay on top of the market every trading day.
If you want to take advantage of our proprietary trading indicators, contact Rob Quinn, our Chief Strategy Consultant, who can provide more information about Mish's Premium Trading Service. Click here to learn more about Mish's Premium trading service with a complimentary one-on-one consultation.
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