Our market leading small caps have paved the way higher since last November, and especially last New Year’s Eve when everyone was losing his or her mind over the Fiscal Cliff. However, as you can see on the zoomed-out 30-minute IWM ETF chart spanning the month of February, virtually all of this month’s gains were given back yesterday and today.
I am fully aware that the market has a knack of faking a breakdown right before we stabilize and sprint to new highs. However, just as taking into account stocks like Goldman Sachs were very extended to the upside when factoring your risk/reward ratio on the long side for swing trades, it is also worth exuding patience when the high beta small caps are so quickly crushed, with seemingly everyone exiting the building at once through the fire escape.
A bounce here would not be surprising, but just how sustainable it is will be extremely telling if this weakness is hinting at a deeper correction.
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