{"id":3211,"date":"2013-10-01T06:47:45","date_gmt":"2013-10-01T10:47:45","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=3211"},"modified":"2013-10-01T08:14:56","modified_gmt":"2013-10-01T12:14:56","slug":"small-cap-stocks-iwm-tna","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/small-cap-stocks-iwm-tna\/","title":{"rendered":"How To Profit From Increasing Relative Strength In Small-Cap Stocks"},"content":{"rendered":"

Over the past several weeks, we’ve been discussing the increasing relative strength in small-cap stocks, compared to the rest of the broad market, and that bullish divergence continues to widen.<\/p>\n

Despite the blue-chip Dow Jones Industrial Average ($DJI) falling 0.8% and closing well below key support of its 50-day moving average yesterday (September 30), the small-cap Russell 2000 Index ($RUT) was unchanged.<\/p>\n

More importantly, the Russell 2000 sits less than 1% below its all-time high.<\/strong><\/p>\n

Furthermore, both the small-cap Russell 2000 and<\/em> NASDAQ Composite printed bullish reversal candlesticks<\/a>\u00a0on higher volume yesterday.<\/p>\n

This means that a move above the intraday high of those candlesticks could easily lead to a breakout to new record highs in short order.<\/p>\n

However, if the intraday lows of those reversal bars are violated within the next few days, we could potentially see a few more weeks of backing and filling.<\/p>\n

Below are daily charts of the iShares Russell 2000 Index ETF ($IWM) and the NASDAQ Composite Index:<\/p>\n

\"$RUSSELL<\/p>\n

\"$NASDAQ<\/p>\n

Because of yesterday’s bullish reversal action and increasing relative strength of the small-cap Russell 2000 Index, we are placing Direxion Daily Small Cap Bull 3X ETF ($TNA) on today’s “official” swing trade watchlist<\/strong>. As always, subscribing members of our swing trader newsletter<\/a><\/strong>\u00a0should note our preset and exact entry, stop, and target prices for this new trade setup in the “watchlist” section of today’s report.<\/p>\n

If the uptrend in the small-cap Russell 2000 resumes in the coming days, bullish momentum could easily spark a sharp, multi-week advance in small-cap stocks. As such, a long position in $TNA would be ideal to take advantage of such a fast-paced move. However, it’s important to note one key point when buying $TNA.<\/p>\n

Because it is a leveraged ETF<\/a>, $TNA is not<\/em> suitable for long-term “buy and hold” investing (which we never do). This is because many leveraged ETFs significantly underperform their underlying indexes as holding duration of the ETF increases.<\/p>\n

On the daily chart of $TNA below, notice how yesterday’s intraday low correlated to support of both its 20-day exponential moving average and\u00a0<\/em>new support of the prior highs (formerly resistance):<\/p>\n

\"$SMALL<\/p>\n

As for current ETF holdings in the model portfolio of The Wagner Daily<\/em><\/strong><\/a>, Guggenheim Solar ETF ($TAN) once again showed major relative strength yesterday by rallying more than 3% on a weak day in the overall stock market.<\/p>\n

Now that our $TAN position is showing an unrealized gain of more than 40% since our original buy entry<\/strong> (July 2), we plan to lock in our large profit by selling all shares of this ETF on today’s open.<\/p>\n

Soon, be on the lookout for an educational trading strategy article (here on this blog) that will walk you through the anatomy of this highly profitable, intermediate-term ETF trend trade that our subscribing members are quite pleased with.<\/p>\n

Are you prepared to profit from a breakout to new highs in the Russell 2000? Have you already been profiting from strength in small-cap stocks? Share your thoughts below.<\/em>
\n
\n