ETF Trends
ETF Trends

The iShares Russell 2000 ETF (NYSEArca: IWM) has hit another rough patch. Entering Thursday’s trading session, the largest small-cap ETF was down 3.7% and earlier Thursday, IWM traded lower by as much as 2%.

IWM now resides about 4% below its 52-week and its technical condition is still fairly healthy as the ETF is still above its 50- and 200-day moving averages. There is the possibility that the recent weakness is no more than consolidation before another move to the upside. [How to Evaluate Small-Cap ETFs]

“Given the recent stalling action at the highs and sharp selloff, the odds now favor the Russell chopping around for a few weeks to digest the last wave up,” says Deron Wagner of Morpheus Trading Group.

While IWM has broken an uptrend line on its daily chart, new highs remain in play if the ETF can holds support at its 50-day moving average.

“IWM’s daily chart details the resistance from the prior highs and broken uptrend line. As long as $IWM holds above the 50-day MA, then the consolidation should eventually lead to new 52-week highs,” adds Wagner.

History suggests investors should not rush to depart IWM simply because it traded lower by 2% for part of Thursday’s session.

“Todd Salamone of Schaeffer’s Investment Research pointed out that in the past four years, when IWM has gapped 2% lower, it’s averaged a 3.4% gain for the following week,” reports Victor Reklaitis for MarketWatch.

Some investors have already departed IWM. The ETF has lost $876.2 million over the past week after more than $2.8 billion was pulled from the fund in the second quarter.

More aggressive traders are preparing for a larger decline by small-caps as highlighted by robust creation activity in the Direxion Daily Small Cap Bear 3X Shares (NYSEArca: TZA) over the past month.

iShares Russell 2000 ETF

 

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of IWM.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.