iShares Russell 2000 Index ETF (IWM) — This exchange-traded fund (ETF) tracks the investment results of the Russell 2000 index, which is composed of small-capitalization U.S. equities. It gives investors access to 2000 small-cap domestic stocks.
S&P Capital IQ has an “overweight” rating on the fund even though it is selling at a 0.08% premium to its net asset value (NAV).
The Russell 2000 has underperformed the other major indices all year, up less than 1% year to date compared with 11% for the market-leading Nasdaq and 10% for the S&P 500.
IWM has gained just 1.2% so far in 2014, but it has an average annual return of more than 14% over the past five years. It has a relatively low expense ratio of 0.2%.
IWM is very overbought on virtually every internal indicator, especially MACD and momentum. Note the lack of a breakout from a breakaway gap, which was closed last week. Further, it has failed to accumulate enough buyers to overcome the death cross (50-day moving average crossed down through the 200-day moving average) from early September.
Since the bottom of October’s “V,” upside volume has been declining — another sign of weakness.
If you own IWM or other small-cap securities in the Russell 2000, hold them with a stop-loss at the equivalent of last week’s low in IWM at $115, which is the equivalent of 1,160 on the Russell 2000.
However, if IWM breaks above last week’s high of $117.37, enter a trailing stop 5% below the daily close to protect against a price reversal.
