Small Caps Trying to Break Out


Almost a month ago, Market Insights spotted a bullish triangle in small cap stocks. Today they’re trying to break out.

The chart below shows the tightening range on the iShares Russell 2000 ETF (IWM) over the last two months. Notice how it’s made higher lows while bucking resistance around $170. It pushed above that level today and is on pace for its highest close ever.

Interestingly, the S&P Midcap 400 (MDY), also ripped to a new high. While it trades a lot less volume, this portfolio also features smaller companies than you’d find in big benchmarks like the S&P 500 or Dow Jones Industrial Average.

Investors often view these lesser-known stocks as riskier and more likely to benefit from a strong economy. They’re also considered the kind of companies that could get acquired. After all, mergers often increase in the kind of strong economic backdrop we have right now.

By the way, IWM is popular for options traders, averaging more than 300,000 contracts a day. That could potentially open the door to strategies with more reward and less risk. Be sure to read our coverage of options if you’re new to the field.

iShares Russell 2000 ETF (IWM) showing new highs (crosses) and potential triangle.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.