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Generally when I look at an index in this space it is the S&P 500, but that doesn’t mean I don’t look at other indexes. Looking through scans and charts last night, one index ETF jumped out at me, as it has fared much worse than the other index ETFs.
Looking at the iShares Russell 2000 ETF (NYSEArca: IWM) and comparing it to the SPDR S&P 5oo ETF (NYSEArca: SPY) and the PowerShares QQQ (NASDAQ: QQQ), there are several items on the chart that stand out.
First, from the June 23 high for the small-cap IWM fund to its low on Feb. 11, it fell over 25%. The SPY, which tracks the S&P 500 index, and QQQ, which tracks the Nasdaq-100 Index, fell 12.8% and 12.37% during this same stretch. In other words, the loss of the Russell 200 ETF was twice as great as the other two ETFs. From the high last June 23 through Monday, the IWM is down 13.35% while the SPY and QQQ are near break-even over the same time frame.
Like the other index ETFs, the Russell 2000 ETF has rallied sharply over the last couple of months, but it is still approximately 16% from its 52-week high, while the SPY is only 2.5% away from its 52-week high and the QQQ is approximately 5.2% from its high.
Looking at the daily chart of the IWM doesn’t give me much hope that the fund is going to catch up to the other two. We see that the daily stochastic readings are in overbought territory and the 10-day RSI just moved out of overbought territory. We also see a trend line that connects the high from last June with the high from the end of November. That trend line is just above the current price level and will likely act as resistance.
Turning our attention to the weekly chart, we see a few more items that make me think the IWM will resume its downtrend in the coming months. The trend line is drawn on the weekly chart as well, so we see that resistance. We also see how the $110 area acted as support for the fund before it dropped right through there at the beginning of 2016.
The weekly stochastic readings aren’t quite in overbought territory yet, but they are very close. They are at a similar level as they were at the end of November, before the next leg down took place. The 10-week RSI is also in a similar spot as it was at the end of November.
Seeing the IWM lag the other two index ETFs makes me think that investors aren’t as confident in this market as they would appear. The Russell 2000 is a small-cap index and when investors are confident in the economy and the market, small caps and tech stocks tend to outperform. The QQQ and IWM both outpaced the SPY from the bottom in 2009 through the high in June. Now, the QQQ and SPY are tracking pretty closely with one another and the IWM is lagging.
This tells me two things. One, the Russell 2000 ETF is getting ready to drop again and probably will drop at least 10%-12%. Secondly, the sharp rally over the last couple of months may be over, as investors don’t seem to have the confidence to push stocks higher and through any resistance.
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