Small-cap exchange traded funds have surged this year as the Russell 2000 cleared the 1,000 mark for the first time. Small-cap stocks have even led the market since April as the S&P 500 and Dow Jones Industrial Average set new all-time highs.
Now, technical analysts are pointing to higher key levels to watch.
The iShares Russell 2000 ETF (NYSEArca: IWM) has gained 23.7% year-to-date. IWM is currently trading around 104.3, with the underlying Russell 2000 benchmark now hovering around 1,050. IWM has a 0.20% expense ratio. [Small-Cap ETF Smokes the Russell 2000 in Its First Year]
Technical analysts at Schaeffer’s Investment Research are now looking at the Russell 2000’s 1,030 and 1,060 as new key chart levels, or the corresponding 103 to 106 range for IWM, as the markets reach overbought territory, writes Victor Reklaitis for MarketWatch.
“The various benchmarks are in uncharted waters and approaching short-term overbought levels, so we could see some sideways movement in the coming weeks, even though a continued unwind from the late-June fear could spur further momentum,” Todd Salamone, Schaeffer’s senior vice president of research, said in a research note. “If the RUT [Russell 2000] goes sideways, areas that may represent support and resistance, respectively, during the next few weeks could be 1,030 and 1,060.”
Schaeffer analysts also point out that 1,030 represents triple the Russell 2000’s closing low in 2009. Joe Bell, Schaeffer’s senior equity analyst, explains that the triple point has served as a resistance area, but now, it could offer support after the index gained.
Additionally, the 1,060 level represents a 25% rise for 2013, which could prompt some to take profits.
Bell sees the outperformance in the Russell 2000 as a bullish signal for the equities market. Small caps leading indicates investors are “starting to get their risk appetites back.” [Small-Cap ETF Rally Could Lead Equities Higher]
Other ETFs that track the small-cap Russell 2000 index include the Vanguard Russell 2000 ETF (NYSEArca: VTWO), which has a 0.21% expense ratio, and the SPDR Russell 2000 ETF (NYSEArca: TWOK), which has a 0.18% expense ratio.
iShares Russell 2000 ETF
For more information on smaller companies, visit our small-cap category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own IWM.