On Wednesday, I joked that AAPL was sucking the life out of the small caps. Well, maybe it’s not a joke after all. On Friday, the Russell 2000 staged a dramatic come-back rally, and broke out of the downtrend channel that I drew in the previous post.
While the R2K was up 1.05% on Friday, AAPL was down 0.58%. Did money rotate out of AAPL into IWM? If it did, and AAPL continues to pull back, then maybe the small caps are the sweet spot in the market now.
That’s the bullish perspective. Now let’s look at the bearish side.
The IWM has been range-bound since February 3rd. Friday’s rally brought it up to the top of the range, and the IWM is now overbought on some indicators.
Thursday, the IWM fell on strong volume, and it rallied on Friday on lighter volume.
The false breakout from March 19th still stands with four consecutive closes below the breakout level.
So, the IWM still has work to do.
Momentum traders have made huge profits during this year’s rally. Maybe it’s time they hand those profits back to the mean-reversion traders, if not the perma-bears.
In any case, the small caps need to scrub that false breakout off the chart.