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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: is a co-founder of the DecisionPoint.com website along with her father, Carl Swenlin. She launched the DecisionPoint daily blog in 2009 alongside Carl and now serves as a consulting technical analyst and blog contributor at StockCharts.com. Erin is an active Member of the CMT Association. She holds a Master's degree in Information Resource Management from the Air Force Institute of Technology as well as a Bachelor's degree in Mathematics from the University of Southern California. Learn More
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