Eye on IWM Versus SPY: Is Bull Market Losing Steam?

11/15/2017 4:06 am EST

Focus: STOCKS

Michael Paulenoff

Consultant and Publisher, MPTrader.com

As long as IWM is trading beneath its 20 DMA, we should consider the dominant near-term downtrend as intact and the dominant near-term influence on price action, which is a negative sign for the SPY and S&P 500 bulls, writes Mike Paulenoff, host of MPTrader.com.

On November 6, we noted in our Mid-Day Markets update that a comparison of the SPDR S&P 500 Trust ETF (SPY) and iShares Russell 2000 Index ETF (IWM) showed a deterioration in the Russell 2000 small-cap ETF relative to the big-cap SPY.

We said that as long as IWM was trading below its 20 DMA at 149.11, we would view it as vulnerable to downside continuation off of its Oct. 9 all-time high at 150.58.

We were watching and continue to watch this SPY-IWM relationship closely, as, historically, in the later stages of a bull market, a divergence is very likely. In other words, as a bull market loses steam, small companies lose upside momentum relative to the “go to” mega-capitalized companies.


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Whether or not that is the case now, rather than merely a temporary rotation out of IWM in favor of SPY, is anyone’s guess in this particular market. Since that time the IWM has continued lower, as has the SPY.

In fact, the IWM has reached the reaction low we called for in our Nov. 8 update in the 145.00-147.70 target zone.

Right now, all eyes are on IWM juxtaposition with its sharply declining 5 DMA, now at 146.41, which has served as a tight-fitting down-sloping resistance line.

As long as IWM is trading beneath its 20 DMA, we should consider the dominant near-term downtrend as intact and the dominant near-term influence on price action, which is a negative sign for the SPY and S&P 500 bulls.

See chart illustrating the technicals on IWM.

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