Many technical analysts keep a close eye on more volatile small-cap stocks to gauge risk appetite in the U.S. equities market.
Tarquin Coe at Investors Intelligence notes that the U.S. small-cap iShares Russell 2000 (NYSEArca: IWM) is faltering somewhat on a relative basis against the S&P 500.
“Underperformance from the small caps is indicative of a weakening marketplace,” Coe wrote in a newsletter Wednesday.
He said the small-cap ETF has created a bearish consolidation after the summer’s big drop known as a “flag” pattern. [Traders Eye S&P 500 Flag]
Meanwhile, the sideways range in the S&P 500 is extending into its sixth week, Coe added.