Trade of the Day: Pattern Targets a 20% Run in Small-Cap Fund

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PowerShares DWA SmallCap Momentum Portfolio (NYSEARCA:DWAS) — This ETF is designed to reflect the results of the price and yield of the Dorsey Wright SmallCap Technical Leaders Index. This index is composed of approximately 200 small-cap companies. Dorsey Wright’s investment approach focuses on point-and-figure charting and relative strength analysis.

In the past three months, DWAS is up 5.3%, more than double the 2.2% return of the S&P 500. However, small caps are not for the faint of heart and should account for no more than 20% of a balanced stock portfolio.

The top five holdings in DWAS are KapStone Paper and Packaging Corp. (NYSE:KS), Graphic Packaging Holding Company (NYSE:GPK), EXACT Sciences Corporation (NASDAQ:EXAS), FBL Financial Group (NYSE:FFG) and PolyOne Corporation (NYSE:POL). The fund charges a management fee of 0.6%.

Last week, DWAS broke from a huge inverse head-and-shoulders formation, which began in August, when shares surpassed $39.80.

The head was made with the October correction when shares hit a low of $32.54. The target for the break is calculated by subtracting the October low from the breakout line and adding that sum to the breakout line ($39.80-$32.54 = $7.26+39.80), giving us an objective of $47.06.

The formation is reinforced by a buy signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR). But stocks don’t rise forever, so expect a round of profit-taking.

Traders should enter a limit order at $39. If executed, a run to my target could provide a profit of more than 20%. A stop-loss order should be entered at $37.50.

DWAS Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/powershares-dwa-smallcap-momentum-portfolio-dwas-trade-day/.

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