Small capped setups

US small capped stocks may be on the verge of breaking out. The ishares Small capped Russell 2000 index ETF has been range bound since late 2018.  That is, the Russell has been unable to put in a materially significant high since then. Meanwhile, the larger capped SPX index has been putting in higher highs – especially of late.

You can see on the chart below that the index is challenging the very notable ceiling of about $158 right now. Will it break out? If it does, that will be a bullish sign. My “three day rule” applies here. Read my book Sideways if you want an explanation of its importance.  I would avoid buying this index until we note a minimum of a 3 bar break of $158. In its favor are a rising MACD and moneyflow. Neartermed stochastics are a bit overbought.


Canadian small capped stocks are not looking so favorable. The iShares TSX Small capped ETF is struggling within its consolidation pattern. Could it be a short termed trade back to the top of its current range of just over $15? Sure it could! But its got quite a way beyond that to break out and provide the means for a more meaningful return.

To me, its a “wait and see” trade for mid termed investors. It might be a potentially interesting super-short termed trade from $14-$15….for those with the guts to make such a call. The shorter termed oscillators like stochastics and RSI are suggesting a decent potential for such a rebound. But the bigger picture stuff like MACD paint an uglier picture. I don’t pay any attention to moneyflow on this ETF (bottom pane). This, due the low participation and liquidity of the ETF. The US Russell index discussed above is far more liquid.


While the IWM index ETF looks  encouraging, the XCS ETF doesn’t. In either case, I find that the small capped index ETFs are a little less predictable vs. the larger capped indices. Given that the small capped stock arena really isn’t so much of a “sector” (they hold many different sectors) – these ETFs might be worth examining for their components –  rather than taken as a trade. For this reason, sometimes its smart to tear an index apart and look at the individual stocks – rather than rely on the broad index as a guideline. Food for thought, anyway.


  • I am looking at the XBM base metall etf. Is it too early to consider it? To me it has bottomed.

    • Dave–not every chart is easy to read. This is one of them
      Materials tend to have a seasonal period that starts in November. So there is that positive. The chart looks to be struggling at old support (new resistance)–thats a negative. So, hard for me to make a call on it. Perhaps if it continues moving up, it will be a good bet.

  • I like how the US market is setting up. I’ve been watching the potential breakout in IWM from its trading range too. A similar pattern is seen in midcaps and, IYT, Transports. If some of these sectors, indexes, breakout from their range, this gives more weight for the bulls and a market that is closer to being in sync all around (haven’t seen a market in sync for some time). Also notice that the McClellan Oscillator is supporting this bullish outlook. It too looks like it could have an upward breakout from its trading range. I don’t want to be too bullish because any catalyst could sell the market down, but for now the US market does look like it is setting up to move higher.


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