Small Caps in Russell 2000 Break Out to Fresh Highs
The iShares Russell 2000 ETF (IWM) rose more than 1% to new all-time highs following its breakout from an ascending triangle pattern on Wednesday. According to iShares, the fund's average P/E ratio clocked in at 20.91x, which is still lower than the S&P 500's 24.78x P/E ratio. Many investors may be drawn to the lower earnings multiples for these companies compared with the lofty multiples seen at larger companies in the S&P 500 and DJIA. (See also: IWM vs. VTWO: Comparing U.S. Small-Cap ETFs.)
From a technical standpoint, the fund broke out from trendline resistance at around $160 to fresh all-time highs of $160.92 on Wednesday. The relative strength index (RSI) is rapidly approaching overbought levels at 67.54, but the moving average convergence divergence (MACD) remains in a robust uptrend following its bullish crossover earlier this month. These indicators suggest that there could be some profit taking, but the long-term trend is bullish.
Traders should watch for some consolidation above $160.00 and then a move toward R2 resistance at around $164.16 over the coming sessions. Based on the ascending triangle chart pattern, the fund could see a long-term move higher toward about $180.00 before meeting significant resistance. If the stock breaks below trendline support at $160.00, traders could see a move lower to retest the 50-day moving average at $155.14. (For more, see: Why Stocks May Stage a Summer Rally.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.