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Small Caps Setting Up to Take a Hit

Remember that inverse funds like TZA move up when the broader market moves down.


Video Transcript

We do have an outside bearish key reversal in the iShares Russell 2000 Index ETF(NYSE:IWM), which then would favor Direxion Daily Small Cap Bear 3X Shares (NYSEARCA:TZA) going up, probably putting in an outside bullish reversal. On TZA’s chart, I show you all of the bullish divergence, which happens with inverse funds all of the time.

[The IWM houses small-cap stocks and has Ocwen Financial (NYSE:OCN), Axiall Corp. (NASDAQ:AXLL),Pharmacyclics (NASDAQ:PCYC), Two Harbors Investment (NYSE:TWO), Genesee & Wyoming(NYSE:GWR), CommVault Systems (NASDAQ:CVLT), Starwood Property Trust (NASDAQ:STWD),Dril-Quip (NYSE:DRQ), Alaska Air Group (NYSE:ALK) and Brunswick (NSYE:BC) among its core holdings.]

But you can see that we could be looking at a potential outside bullish key reversal in TZA off of the lows, as it also does a hammer move that we saw in many gold stocks on Monday.

Bottom line: IWM looks to be preparing for a move to the south, while TZA could move north.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.  For more information on which service is for you click here.

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