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Small-Cap ETFs In Trouble - Possible Head and Shoulders Formations

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After the market close, my technical alert activated on IJR, the S&P 600 ETF with a new Intermediate-Term Trend Model Neutral signal. I noted that this same signal has already been hit on IWM, the Russell 2000 ETF. While I believe we are in a consolidation or shake out with a follow-up rally likely coming in the market, I'm not yet convinced the bull market is or will resume anytime soon. I'm sure it hasn't passed notice that Carl and I have been more bearish than most based on sector rotation study, our indicators and now I'm seeing small-cap charts setting up for decline, not rebound or rally.



Looking at IJR, I think best case scenario is consolidation along the head and shoulders neckline and 200-EMA, followed by a breakout above $78. If this pattern should finish forming and execute with a drop below the neckline, the minimum downside target is around $70. I suspect it will find support before that time around $72 where we have the February low and November lows as support...not to mention Summer 2016 tops around $71. The PMO is not only below the zero line, it topped below its signal line there. The OBV and SCTR look pretty good which suggests the consolidation above $75 could be the result.

IWM produced its IT Trend Model Neutral signal about a week ago when the 20-EMA crossed below the 50-EMA while above the 200-EMA. We also see a negative PMO top below the zero line and signal line. For IWM, best case is consolidation between $148 and $154. However, if this head and shoulders pattern executes with a drop below the neckline, the minimum downside target is around $137. However, like IJR, I believe it will find support at the February low around $142.

Conclusion: A new bull market rally will need small-caps behind it. These bearish signals and charts have me on edge.


Helpful DecisionPoint Links:

Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Erin


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Erin Swenlin
About the author: helped create and manage the DecisionPoint.com website alongside her father, Carl Swenlin. Together, Erin and Carl launched the DecisionPoint daily blog in 2009. She hosts the MarketWatchers LIVE web show at StockCharts.com, and is also a Member of the CMT Association. Learn More
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