I am the type of trader that likes to keep things simple.
I don’t scan through the thousands of stocks to buy or sell. I don’t try and trade all of the index ETF’s. I trade one index, the Russell 2000 and when you stick to following just one index, you learn how it trades.
For the last two weeks, I have been expecting the beta chasing bulls to ramp up the small caps or the Russell 2000. For the last two weeks, our trades have been spot on, but yet we didn’t make any real money. We were trading the right side (long) of IWM iShares Russell 2000 Index (ETF), but we weren’t taking profits quick enough.
With the larger indexes not ready to move higher, IWM was moving higher for us, but not able to hold the gains and being stopped out with small gains instead of huge gains, became a norm.
But now that the other indexes should be moving higher, based on wave counts and divergences, the small cap beta chasers will be driving IWM higher in a very fast manner. I am expecting IWM to test the 116-118 levels within the next two weeks.
Why? Because I know how it trades!
The small caps are an all in all out type of trading instrument. They move two to three times faster than the other indexes and when too many get bearish on IWM, they are setting themselves up to get squeezed. When too many are bearish, they are setting themselves up for a very sharp nonstop drop.
If IWM is going to follow similar patterns we have seen when bearishness has hit extremes —like we just saw —expect pullbacks to be fast but bid back up.
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To see the pattern that is in play with the specific target, click here.
