07.24.2023
This note takes a look at IWM’s technical position, and shares some of IWM’s strongest components.
BROAD MARKET PERFORMANCE
Since the broader market ETFs bottomed on October 13th 2022, they have gained between 9.5% to 44%. QQQ is leading (+44%) and IWC is lagging (+9.5%).
Chart 1: Broad Market ETFs. Performance Since 10/13/2022. Click To Enlarge.
THE IWM ITSELF
Lately, one of the hot topics is small-caps. The image above shows small caps, in the form of IWM, second from the bottom only gaining 16.5% from the October 2022 low. As such, many are calling for a rotation/catch-up trade. Also, some are excited because of IWM’s relative chart. IWM compared to SPY is currently holding above the same area it bottomed in late March/early April 2020. This is illustrated in the bottom panel of the chart below. These two ideas are sparking interest in IWM.
Chart 2: IWM Weekly Chart & Relative Strength. Click to enlarge.
The top panel of the chart, IWM’s weekly price bars, shows the trend of IWM is rangebound between $202 and $162.75. Price retested the bottom of that range in late September/early October 2022, and then buyers stepped in and supported price well above the bottom of that range in January and March of 2023. At the same time, the relative strength line held its 2020 low. These are encouraging signs; However, while price did not make it back to the bottom, it also did not make it back to the top of the range in February 2023 either.
The rangebound weekly chart does not look particularly exciting to a trend trader. Price tightening up for a few weeks just below $202 would be more exciting. That tight price action would indicate that selling has stopped, and it would offer the opportunity to start a position. Alternatively, for those with more patience and/or those waiting for more evidence of an upside resolution, price breaking above $202 and holding, with relative strength moving higher, would also make for a solid entry.
The chart below is the daily IWM chart. It shows the improving technical position. The down arrows point to where price could not trade above its flat 200-day moving average in April 2023. After breaking above the 200-day average to start June, the up arrows point to price holding above its 200-day average. The middle panel shows IWM’s momentum; RSI is staying above the 40/50 area and is nearly overbought. This speaks to upward trending price action.
Chart 3: IWM Daily Chart, Momentum, & Relative Strength. Click to enlarge.
For another look at IWM, we can use a Point-and-Figure chart (PnF). The benefit of using a PnF chart is its focus on trend; Price is plotted without concern for time. PnF also offers binary buy/sell signals and price targets. The PnF chart below shows price is currently on a buy signal, see the green squares, with an initial target between $222 and $232.
Chart 4: IWM PnF Chart. Click to enlarge.
SO, WHAT IS THE DEAL WITH THE IWM?
The weekly price chart, Chart 2, is rangebound, with some positive technical developments. These developments are pointing to a potential upwards resolution from its 14/15 month base.
The daily price chart, Chart 3, shows price holding above its now upward sloping 200-day average and supportive momentum condition.
The Pnf chart, Chart 4, is on a buy signal with a target between $222 and $232.
If one is ready to take on the risk of buying while price is rangebound and hoping for an upwards resolution, it should be safe as long as price holds its 200-day average above $180. If price gets back to the top of the range in the $200/$202 area, the price action will let us know if absorption is taking place ahead of a breakout, or if supply remerges to keep price rangebound.
LEADING IWM STOCKS
CVNA. 4.8 billion market cap discretionary stock. Admittedly, it’s difficult to recommend this stock after its big earnings miss on 7/19, however this is the highest ranked momentum stock in the IWM. Will momentum or fundamentals win out here? $60 might prove to be formidable resistance, and this last open gap from the 7/19 earnings miss might prove to be an exhaustion gap. That said, If price pulls back and holds the green AVWAP or if price tightens up just under $60, clearing $60 opens the door to $100.
Chart 5: CVNA. Click to enlarge.
RDFN. A 1.5 billion market cap real estate company. Earnings are in two weeks on 8/3 after the close. If we can hold the $10-$11 area, this has room up to $28. There should be some selling overhead as the green AVWAP is the all-time high is around $18.50.
Chart 6: RDFN. Click to enlarge.
ELF. A 6 billion market cap staples name. This has been a massive winner over the last few quarters. ELF reports earnings in two weeks on 8/1 after the close. There have been a few days of profit taking for sure, and this stock has not respected its 50-day average cleanly. Perhaps worth a shot ahead of earnings if price can hold the $104 level.
Chart 7: ELF. Click to enlarge.
DOCN. This 4.3 billion market cap is a tech name. Price is above the green AVWAP from the all-time high, telling us buyers just reestablished control. Earnings are in two weeks on 8/3 after the close. Holding the green AVWAP is the first risk level, and the 50-day average in blue is the second.
Chart 8: DOCN. Click to enlarge.
TPH. A 3.2 billion market cap home builder. This has been a very strong stock since the Oct 2022 lows. After a massive run higher, price has been going sideways since June. Earnings are next week before the open on 7/27. Taking a starter position now might be advantageous. We are ahead of earnings and the possible trend resumption higher. Below $30 and the idea is invalidated.
Chart 9: TPH. Click to enlarge.
AVDX. This 2.4 billion market cap software company is setting up nicely. Earnings are in two weeks before the open on 8/2. Price is above its IPO AVWAP in green, and price and relative strength are breaking out. Long above $10.
Chart 10: AVDX. Click to enlarge.
WRAP UP
As always, thank you for reading. Hopefully it has put IWM into context and featured some interesting ideas. I’d love to hear from you. E-mail me: Louis@eastcoastcharts.com
This article is for educational and informational purposes only. The author may or may not have a position in the securities mentioned. Read our full disclaimer here.
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