Small Caps Breaking down

Posted by downtowntrader | 10/02/2006 09:16:00 PM | 0 comments »

Small and Mid caps have continued to underperform even as the market rallies, so the question is, will they lead to the downside. While the recent pullback in the major indices has remained quite tame, the chart of the IWM (tracking ETF for the Russell) is showing a possible breakdown. It looks like a trip to 70 is almost guaranteed before any sort of consolidation happens.

Martin Pring highlighted KKD today on his monthly newsletter and this chart looks pretty bullish to me on an intermediate to long term basis. I would probably wait for a retest of the recent breakout, but it's worth adding to the watchlist already.
It's tough to try and pick tops but AMX looks like it may be topping here for the near and possibly intermediate term. Note the MACD divergence as it tries to make a new high. Also had a bearish engulfing candle today which usually signals a few bars of weakness.
WWY has been under distribution all year and may be on it's way to retesting the 52 week low.

MRVL announced that it would need to "restate" past earnings and guided lower for the 3rd quarter this evening and it was being punished after hours finishing down 18%. Other chip stocks were dropping with them, so tomorrow may see pressure on the semi's as a group. Keep an eye on how they close to see if bargain hunters come in, or if traders rush to lock in recent profits. That will give us a clue to the longevity of this rally.

Good Luck,